Friday, March 20, 2009
The AIG bonuses are an outrage. But the bigger scandal is that a grandstanding Congress wants to use the tax law to punish the companies that paid them and the employees that got them.
If Congress wants to limit bonuses for employees of bailed-out companies, it should just do it. But using the Internal Revenue Code is a truly terrible idea. And dipping into the Code to win political points is worse. Long ago, people were rightly outraged when Richard Nixon tried to turn the IRS into a weapon to punish his enemies. This gotcha tax is another variation on the theme, and nearly as inexcusable. Imagine, for instance, if a GOP Congress retroactively barred people from deducting charitable gifts to Planned Parenthood. Or Democrats imposed a 50 percent surtax on companies that that do security work in Iraq.
[A] 100% "tax" on a specific group of individuals with respect to items paid before enactment of the "tax" certainly makes me uneasy. (Scare quotes because - though I am no constitutional law expert - the narrowly targeted 100% rate seems to put it on the wrong side of the amorphous line between a tax and a Fifth Amendment taking.)
Frankly, it doesn't bother me in the slightest if the 100% tax applies just this one time to just these people. They would appear to deserve it many times over. But one can never be sure that one isn't creating a precedent with legs. Might the device someday be used against someone else who just happens to be unpopular?
I'd actually like to make an example of these guys - as the French would say, "pour encourager les autres," as well as for general public morale. But I'd prefer a better way of doing it, such as investigating them for looting and fraud, which might have been amply justified even without the bonuses.
For those who think that a 100% excise tax is unprecedented, check out what happens when a tax-exempt organization or qualified retirement plan engages in a prohibited transaction and fails to take corrective action. Yes, there is imposed a 100% tax. Though the tax has the quality of being punitive, it has an even stronger characteristic of being a deterrent. The downside to imposing a 100% tax on the AIG bonuses is that it would not serve as a deterrent. We are paying the price for decades of ineffective controls on inappropriate executive compensation and decades of weak enforcement of what restrictions are in place. There also is a risk that the tax could be challenged on the grounds it is an impermissible taking and confiscatory. ...
It's too late for deterrent taxation. It soon may be too late, period.
Joe Kristan: Why You'd be Crazy to Let the Government Invest in Your Business (Roth & Co.).
Elie Mystal: Bill of Attainder? Communist Revolution? Fire Bad? (Above the Law)
Miami Herald: Tax Code Mustn't be Used as Weapon:
It may also violate the constitutional ban against ex post facto laws. More to the point, lawmakers are treating a symptom of the economic crisis and overlooking the root causes of the problem -- unbridled corporate greed and the failure of the regulatory system. There are better ways to channel taxpayers' anger and fix the immediate problem.
Outraged US legislators are pushing through punitive taxes on bonuses not just at AIG but at all recipients of government funds. The hot-headed and unfairly retroactive changes could hurt investor confidence, undermine President Barack Obama’s credibility and damage the still valuable US finance sector. ...
The bonus tax idea is bad for a range of reasons that senators should consider calmly, even if the House didn't do so.
Kay Bell: Nullify, Don't Tax, AIG Bonuses (Don't Mess With Taxes):
[E]nough with the tax code. It's got plenty of pages already. And the administration of a special tax on just certain taxpayers would be an administrative and costly endeavor. Haven't we wasted enough on these guys already? I say just void the bonuses.