The AIG (and Everyone Else) Bonus Bill: Counterproductive and Unconstitutional
Whom It Really Targets
- The Hit List: H.R. 1586 retroactively taxes AIG
employees who are due deferred compensation and would tax that
compensation at a 90% rate.
- A Much Broader Sweep: Going forward, the bill also
imposes a 90% federal tax rate on anyone employed by a
company receiving $5 billion in TARP funds who has a family
income over $250,000, individual income over $125,000 (if single or
married but filing separately), or performance pay larger than
adjusted gross income.
- What Defines a Bonus? Under H.R. 1586, a "bonus" is any
amount over an employee's base salary, including retention and
performance pay and even deferred compensation. But compensation in
banking and finance is heavily geared towards performance, with
relatively lower base salaries.
- Counterproductive Policy: While taxpayer money shouldn't
be spent on excessive bonus compensation, broad-based pay caps and
punitive clawbacks will hurt performance and slow economic
recovery. The government is ill-suited to set private-sector pay
scales and risks causing more financial damage.
- Your Branch Manager: Anecdotally, a "Regional Branch
Manager" for Bank of America who makes $250,000 plus bonuses for
outstanding customer service at his branches would be taxed at 90%
due to this bill.
The Real Problem, Plain and Simple
- How We Got Here: Senator Chris Dodd would like you to
forget that he inserted specific language recognizing AIG's
executive compensation into the $800 billion stimulus bill, which
Finance Chairman Max Baucus now admits nobody read.
- Government Bailouts: This is the inevitable result of
government bailouts, which turn private concerns (such as
compensation agreements between private parties) into public
business, bringing politics where it is likely to do damage.
- Hasty Bills Make Disastrous Policy: The very fact that
this problem was created by a mega-bill that wasn't properly
reviewed before passage--and is now being "corrected" by a hastily
put together bill that hasn't been properly reviewed--is beyond
- Avoid This in the Future: To avoid further entanglement
of the federal government and taxpayers in routine business
matters, President Obama and Congress should reject further
bailouts and insist those already done be unwound as quickly as
It's Not Constitutional, Plain and
- Bill of Attainder: The Constitution prohibits Congress
from punishing individuals, which is the role of the justice
system. This prevents legislative tyranny and is essential to
ensuring that those accused of wrongs receive due process and can
mount a defense. It also encourages "sound legislation," which is
not accomplished by legislators being whipped into a frenzy and
interfering in personal and economic affairs.
- An End Run? Congress added more taxes to the bill to get
around the bar of bills of attainder, but it can't make an
unconstitutional act permissible by cloaking it in the guise of a
- Taxation Not the Answer: Congress is prohibited from
using the tax code as a weapon of convenience against a select
group of unfavorable people, even when the political opportunity
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