Good for Congress
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Though Michael is correct that the AIG bonuses pale next to the bailout itself, I’m inclined to applaud the House’s proposed 90 percent tax on the bonuses. Crucially, the legislature did not single out AIG: the tax applies to all companies that receive $5 billion or more in rescue money. Those are taxpayer dollars that these executives, many of whom are patently incompetent, are being given. The incentives created by the tax are all in the right direction: 1.) don’t continue to reward the bigwigs at AIG, Fannie, Freddie, etc.; 2.) don’t encourage talented people (if there are any) to stay with these zombie companies that already aren’t “viable” –it’s better that talented people go to companies that actually are viable; 3.) send a signal to other decrepit financial institutions that bailouts come with some personal pain (or at least deprivation of pleasure) for the receiver; and 4.) having already decided to pour billions upon billions of taxpayer dollars (or Chinese loans) down the sinkhole, at least refrain from adding insult to injury.
When news of the tax first broke it sounded like Congress was throwing the rule of law to the wind. But that’s not the case: punitive taxation for the recipients of taxpayer largesse neither amounts to a bill of attainder nor affronts the free market. It simply gives these dubious executives a whiff of what would have happened to them if Uncle Sam had not come riding to their rescue.
Filed under: Economics
Sen Kyle (sp?) is holding the bill up in the senate. Are the Republicans intent on committing suicide?
This is one of the best short arguments I have read so far, why this tax is good idea. Well done!
I don’t know what to think of the bonuses, but I would love to see a movement of conservative candidates in 2010 who campaign on a platform of refusing to accept any contributions of any kind from anyone in the financial sector.
These bailouts clearly exist because they were bought and paid for by the people that matter (the big campaign donors) and reported on favorably by a news media that would be ruined without the huge chunk of ad dollars it receives from the financial sector.
Isn’t it an ex post facto law? Maybe not technically since that may not apply specifically to tax law, but it seems to be one in spirit. I think the courts have found similar actions in the past unconstitutional. It is also bad precedent. What is to stop them from taxing gun dealers and makers at 90% for example?
When gun dealers receive federal subsidies or bail outs they can be taxed at 90%.
Red Phillips wrote:
“Isn’t it an ex post facto law?”
Just off the top of my fallible memory Red, I seem to recall there being an old S. Ct. case saying that retroactive tax laws don’t violate the constitutional ban on ex post facto laws so long as they are not considered punitive in nature. I.e., provided that there is some non-punitive intent behind them, with this being tested by the courts under very non-rigorous scrutiny that essentially gives the benefit of the doubt to the government. And since so many tax laws are ex post facto, I wonder whether the courts wouldn’t be worried about opening up a Pandora’s box of future claims against future taxes by prohibiting a tax on these bonuses on ex post facto grounds.
That said, like I sense is the case with you it don’t make me feel all that good seeing the tax law used this way. Maybe the still smelly but better way would be for Congress to do for these bailed out companies what it tried to do (and did I think) for the Telecom companies that went along with Bush wiretapping us, which was to give them immunity from suits for same. Thus, AIG could renege on the bonus contracts, the frustrated execs could sue, but the companies would be immune.
Like I say still smelly to me at least, but maybe a bit more justifiable in the sense that it can be argued that Congress has the right to not see the assets of these allegedly crucial companies and indeed the bailout monies that it has extended dissipated by these bonuses.
All in all though one thing that does seem to me to be a legitimate gripe that we are focusing too much on these Execs is that we ought to save a little anger at both the Bush and Obama people for not making sure those bonuses weren’t somehow scratched before they handed over the bailout dough in the first place. One way or another I think that could have been done. (Just as they should have required that any bailout recipients stop making any and all future political contributions whatsoever so long as they still owe any bailout money back, and maybe stop all lobbying efforts too.)
On the other hand what I *really* wish would have happened is none of these bailouts at all, at least in the form they took, because it seems to me once that initial plunge of corruption was taken it means that all kinds of other corruptions are going to have to be swallowed too. E.g., it’s like kissing a tar baby; first your lips get stuck, then your one hand gets stuck trying to get it off your lips, then your other hand gets stuck trying to free your first hand, and then…. (Or maybe like a Ponzi/pyramid scheme; at first it’s just a few investors you cheat, but then you gotta cheat more, and more….)
Cheers,
“What is to stop them from taxing gun dealers and makers at 90% for example?”
The prospect of having your political career destroyed leaps to mind.
[...] Obviously, I don’t very much like Congress’ latest bonus shenanigans. It is at the very least constitutionally problematic, it sets a bad precedent for other politically unpopular groups, contracts are contracts, and nothing that contains the phrase “90 percent tax” can possibly be a good idea. That said, Daniel McCarthy has a point: [...]
Clark may be right….
The idea that constitutional rights are only protected by the political sway of the affected group should send a cold chill up everyone’s back.
The risk of democracy is that any majority may use the force of government to oppress any minority. The constitution is necessary to prevent that from happening.
It helps to first demonize the group selected for opression – a time honored and effective approach. Certainly the pattern in this case. Depriving unpoular minorities of their constitutional rights is an easier sell.