Death and Taxes
Senate Democrats will seek to recoup $165 million in bonuses paid to executives of the troubled insurance giant American International Group through a narrowly focused tax, unless the money is returned voluntarily, party leaders announced this morning.
Senate Majority Leader Harry M. Reid (Nev.) said Finance Committee Chairman Max Baucus (Mont.) would unveil a proposal by tomorrow that would tax up to 98 percent of the bonus money. "That will certainly send a message to the people at AIG and all others who try to benefit from the hardships the American people face," Reid said.
In the House, Reps. Steve Israel (N.Y.) and Tim Ryan (Ohio) introduced the "Bailout Bonus Tax Bracket Act" to create a 100 percent tax on bonuses over $100,000 that are distributed to employees of financial firms receiving federal bailout funds.
On the scale of grand karmic justice, this all sounds fine. Screw 'em. Sadly, though, the world doesn't work on the principle of karmic justice. If it did, Rush Limbaugh would be flipping burgers at a McDonalds in West Sacramento. So, some random thoughts:
• Would this cause havoc with the sanctity of contracts? Would no one ever trust the United States government again? I've now read variations on this theme several times, and I'm unimpressed. More likely, I'd say, is that the lesson everyone would learn is that if you destroy the global financial system then you might have your bonuses taken away. This does not strike me as such a bad lesson.
• Would this be legal? Just curious. The Supreme Court is fine with retroactive tax increases, but if you target this too finely couldn't it be read as a bill of attainder? Maybe some legal eagles can chime in on this.
• I wonder how many of the folks at AIG getting the big bonuses are American? Can we get Gordon Brown to put the screws to the ones who aren't?
• There's actually a genuine unfairness in applying this to every financial firm that's received federal bailout funds. This is one of the reasons I opposed Hank Paulson's dramatic October gathering where he insisted that every big bank accept TARP funds: it means that we don't know which banks really needed the money and which ones didn't. If, as Richard Kovacevich continues to insist, Wells Fargo never needed the money in the first place, does the government really have the moral authority to wipe out Wells Fargo's bonuses?
• Are we afraid that if we don't pay these guys millions of dollars they'll all quit and AIG will implode even worse than they already have? Here's an idea: draft 'em. Rewrite the selective service law to remove age limits, make financial wizards a special category, and then induct them into the Army. Unlike the world of foreign affairs, this is one place where the carrot and stick metaphor is genuinely appropriate: instead of the carrot of millions of dollars for good performance, we'd use the stick of years in the stockade as a way of preventing bad performance. Plus we could make them all wear uniforms and clean out the latrines in their spare time.
That last idea is dedicated to Tyler Cowen. We don't want bloggy fame making us too conventional, do we?