Is the AIG Bonus Tax Going Too Far?

OK, everybody hates AIG. We get that. One of their business groups played a huge part in the financial crisis that is currently burning its way through the American economy and culture. We get that, too. The executives doing this signed contracts with the company that gave them bonuses for reaching certain figures. They did what they needed to do for those bonuses to kick in and the company was obligated to pay. Take away the outrage, look at it objectively, and that is what it all boils down to. These executives did what they were contractually obligated to do and, in return, so did AIG.

The AIG Bailout Morass

We could go on to discuss the fact that it was Congress and past administrations that made it possible for AIG to do what it did. We can talk about the bonuses paid to the executives and Fannie and Freddie (where is Barney Frank’s outrage over them?) and we can talk about Chris Dodd trying to slip in legislation that would have allowed the executives to keep their bonuses. We can talk about how this is a diversion from larger issues that would make the President and Congress look worse than they already do. We can even talk about how George W. Bush set the whole thing in motion. Yes, in the AIG mess, there is a lot to talk about, but there is one thing that is more frightening, more disturbing than any of these since it strikes at the heart of American freedom: The 90% excise tax being proposed to claw back those bonuses. Here is how Reuters describes it:

Channeling the populist sentiment, House lawmakers will vote on a bill on Thursday to recoup most of the bonuses paid to AIG executives. The bill would impose a 90 percent tax on bonuses for executives whose incomes exceed $250,000. The tax would apply to executives of any company that received at least $5 billion in government bailout money.

The Targeted 90% AIG Bonus Excise Tax

I cannot think of a time since the McCarthy Hearings when the force of government was unleashed upon a small group of people who did nothing illegal, lived up to their contractual obligations and were compensated accordingly. Was it bad PR for AIG to pay those bonuses? You bet. Was it immoral? Maybe, maybe not. Was it illegal? No.

Yet here we have the US Government planning to impose a special tax on this tiny group of people who broke no laws. They are financial executives, one of the most distrusted and despised sector of our population today. There is no question, some of that hate is deserved by some of these people, but the rest is pure hyperbole that affects the entire group. They are an easy target for politicians, who have far more culpability in these matters, to condemn and persecute in the name of the people because there are few who will stand up and defend them.

I will not debate whether or not they should be defended, what is at issue here is whether the US Government should be engaged in punishing select groups through special taxes. While it serves a populist political purpose, this proposed tax sets a dangerous precedent. It allows the government to control how people get paid by confiscating money from those the government disapproves of. Yes, it starts with the top earners, but like most things the government does, it will eventually trickle down as new circumstances arise and the politicians look back on this and say “why not do it again?”

Why Do It At All?

That is the big question, and the reason is, plainly, that the Congress and the Obama Administration have in AIG a scapegoat for the problems that they, themselves, are partly to blame for and they plan to exercise their power over that scapegoat to appear to the people to be responsible and concerned. But that is all it is, appearances. More than that, it is unconstitutional appearances. Consider this from Article I of the US Constitution:

Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States

No bill of attainder or ex post facto law shall be passed.

The proposed AIG excise tax only affects a few, chosen individuals from certain companies, it is not uniform throughout the United States. Moreover, this certainly qualifies as an ex post facto law, an attempt to change the legal consequences of acts committed prior to the enactment of the law.

Section 10. No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

Section 10, Article I, deals with the states and forbids them from bills of attainder and ex post facto laws and from making any law that interferes with contracts.

The Bottom Line

Our government used to have a line in the sand over which it did not step, the Constitution of the United States. Then came Abraham Lincoln and his suspension of Habeas Corpus, but even then the Constitution provides an exception in the case of rebellion, so Lincoln’s actions were in line with our foundational document and the intent of the framers.

Whether you agree with AIG executives getting bonuses or not, the issue of whether the US can take it upon itself to pass an ex post facto law that takes those monies, lawfully paid in accordance with existing contracts, is a far more important and disturbing question. If it was so important, they should have included a “No Bonus” rule the legislation that gave AIG and all these other failing companies the bailout money in the first place. But they didn’t and now they want to change the rules after the fact—never mind the Constitution they are supposed to defend—and get that money back.

As stated before, this is a dangerous precedent and it is yet another erosion of freedom here in the US. The Constitution protects us, the people, from our government. The more of our freedoms we give them—including the freedom to decide what our employee’s work is worth, the freedom to abide by lawful contracts—the more they take. If they are able to do this, the only question left will be how long it will be before they get to you and your pay?