Friday, March 20, 2009

Retroactive Tax on Bonuses Would Set a Dangerous Precedent

I'm sure you've all heard the gnashing of teeth about the bonuses payed to executives by bailed-out financial institutions. Now congress wants to slap a retroactive tax of 90% on all of those bonuses (story here). (It's ironic to hear the outrage from congressmen about wasted taxpayer money in the bonuses--didn't these guys approve the bailout in the first place?) I know everyone is angry about wasting taxpayers money but think about the precedent this kind of bill sets. I'm not a constitutional scholar but this sounds like a bill of attainder. Legal experts correct me if I'm wrong, but this is essentially a bill that punishes someone for a supposed crime without a trial. It is really a usurpation of judicial power by the legislative branch. Essentially, the government is going to confiscate private property because the public is upset and because CEO's are bad guys. These bonuses are contractual agreements agreed upon by private parties (see here for more discussion on this topic) and their priority relative to other obligations these companies have should probably be worked out in bankruptcy court, not in congress. At any rate, the government should have stipulated the conditions for disbursement of the bailout money BEFORE they flushed it all down the toilet.

Post script: It looks like someone else has the same idea.


  1. Great post Rob. While yes, bonuses are a crummy way to use the bailout money but it doesn't mean we can just cast aside individuals' right to property and take it back. Second, it seems like WAY too much time is being spent on this and that there are more important issues the govt. and populace should focus on. Its more like a day time talk show drama than a substantive issue in the grand scope of our current economic crisis. It allows the govt. to deflect some of the spotlight onto those other bad guys.

  2. I agree. They missed the boat by not addressing the pre-existing bonus contracts at the time of the bailout, and I was shocked that the House passed the bill. I'm hoping the senate will be more reasonable.

  3. Media, even "hard news media" have a dramatic proponent to draws viewers. This story has legs because average folks who are worried about providing for their families get all fired up over corporate fat cats using tax dollars to furnish their yachts. It's come to light, even since this blog entry, that the bonuses where much higher (around 218 million, not 73 or 165 which I had read earlier)than first reported, so some outrage and frustration is expected.

    Rather than taxing retroactively there seems to be better ways of dealing with this. I've heard AIG needs MORE money, so dealing with the bonuses in how much more is given seems fair, and I don't care about 'contractual obligations' if AIG had gone under there would be NO bonuses for ANYONE, contract or no, so contractual shifts seem appropriate when government steps into the private sector to save a business.

    I for one wasn't surprised this happened (Sifty handling of part of 170 billion dollars? Get out of town!), but am ready to not hear about it anymore, isn't there some other issue we can be outraged about?

  4. In all this I am mostly outraged at the media and lack of true reporting. I understand the need to meet contractual obligations, I even can sort of understand congress thinking that AIG would be careful with the money.
    What I don't get is the media, their job is to report the WHOLE story. Not just the part that gets the blood boiling. It took 3 days on NPR to get an interview that explained what type of bonuses were paid, to explain that they were not merit based, but retention. 3 days - Disgusting.

  5. I've been screaming "bill of attainder" for days now. Good observation, Rob.

    In fact, its so blatantly a "bill of attainder", that I am convinced that the House realized that, but wanted to pander to their base as if they are trying to do something.

    And once its passed, there ain't no going back.