Congress Threatens AIG Execs with Taxes

Congress is threatening to confiscate AIG bonuses by abusing its power to tax:

Senate Democrats vowed Tuesday to all but strip AIG executives of their $165 million in bonuses, as expressions of outrage swelled in Congress over eye-catching extra income for employees of a firm that has received billions in taxpayer bailout funds.

“Recipients of these bonuses will not be able to keep all of their money,” declared Senate Majority Leader Harry Reid, in an unusually strong threat delivered on the Senate floor.

“If you don’t return it on your own we will do it for you,” said Chuck Schumer of New York.

The bonuses were paid legally, part of a program that had been disclosed in advance in filings that American International Group Inc. made with the government.

Senate Democrats threatened to tax the bonuses at up to 91 percent through narrowly written legislation, said Schumer, if AIG does not return the money voluntarily. Republicans have said President Barack Obama should have done more to prevent the executives from accepting the bonuses in the first place.

Senate Finance Committee Chairman Max Baucus asked, “What is the highest excise tax we can impose that will stand up in court? Let’s find out what it is.”

In the House, Reps. Steve Israel, D-N.Y., and Tim Ryan, D-Ohio, introduced a bill that would that would tax at 100 percent bonuses above $100,000 paid by companies that have received federal bailout money. “It boggles my mind how these executives can be so unaware of what the American people are going through,” said Ryan. He called his proposal “a wakeup call that the days of arrogance and greed on Wall Street are coming to an end. We will use any means necessary.”

As outrageous as executives of companies getting taxpayer bailouts getting multi-million bonuses might be (see Andrew Ross Sorkin for a contrarian view), it pales in comparison to Congress using the tax code to punish selected individuals.  While not technically a bill of attainder, it’s certainly a private bill of the type the Founders considered “tyranny” when done by George III.

One hopes cooler heads will prevail in the end.  That it’s even being considered, however, once again proves the wisdom of Chief Justice Marshall’s statement that “the power to tax involves the power to destroy.”  (He was actually quoting back Daniel Webster’s statement in oral arguments that “An unlimited power to tax involves, necessarily, a power to destroy” but Marshall made it famous.)

FILED UNDER: Congress, Economics and Business, US Politics, , , , , , , , , , ,
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. odograph says:

    I agree. It is totally inappropriate (and probably unconstitutional?) to write that kind of targeted bill.

    On the other hand, I think multi-million dollar bonuses should face a higher marginal rate.

    And I think the Bush years left us with some opportunities to find existing tax cheaters amongst those bonus receivers:

    Since taking office, the Bush administration has repeatedly promised to get tough with tax cheats, saying it has ended a long slide in enforcement of tax laws.

    But an independent analysis of new Internal Revenue Service data released today shows that tax enforcement has fallen steadily under President Bush, with fewer audits, fewer penalties, fewer prosecutions and virtually no effort to prosecute corporate tax crimes. The audit rate for the 11,200 largest corporations, which pay nearly all corporate income taxes, has fallen by almost half over the last decade, as has the audit rate for unincorporated businesses.




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  2. Bithead says:

    Cooler heads?
    James, these are Democrats, who desperately need to maintain the narrative of the private busienss being an evil that must be controlled by the power ogf government.

    Trust me, there’s no chance of cooler heads prevailing prior to two years from last november.




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  3. Bithead says:

    In the House, Reps. Steve Israel, D-N.Y., and Tim Ryan, D-Ohio, introduced a bill that would that would tax at 100 percent bonuses above $100,000 paid by companies that have received federal bailout money. “It boggles my mind how these executives can be so unaware of what the American people are going through,” said Ryan. He called his proposal “a wakeup call that the days of arrogance and greed on Wall Street are coming to an end. We will use any means necessary.”

    I note he says nothing about the WH becoming party city on the taxpayer’s dime. Telling, that.




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  4. Scott Swank says:

    Bithead,

    Which democrats have said that they support a, “narrative of the private busienss (sic) being an evil that must be controlled by the power ogf (sic) government,” or is that another of those pesky straw men? And I don’t suppose you have any support for, “WH becoming party city on the taxpayer’s (sic) dime,” either? Enjoy your windmills.




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  5. PD Shaw says:

    I think we can call this piece of special legislation, the Son of Terri Schiavo law.

    Folks, we can’t change the past; we should at least try to learn from it.




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  6. PD Shaw says:

    It is totally inappropriate (and probably unconstitutional?) to write that kind of targeted bill.

    I suspect the issue is whether the tax is considered merely a pretext for punishment. That might depend on the rate, but also whether a specific person or group is being targeted, and whether it is directed towards a specific course of conduct. The legislator’s statements are evidence that the tax is intended to punish — they probably couldn’t write a decent law now if they tried.




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  7. Wouldn’t this be struck down under the constitutional ban against bills of attainder?




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  8. Franklin says:

    Cooler heads?
    James, these are Democrats, who desperately need to maintain the narrative of the private busienss being an evil that must be controlled by the power ogf government.

    Of which party did a member suggest recently that the AIG execs commit suicide?

    Boy you’ve got the some selective memory.




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  9. sam says:

    Golly, I read that we own 80% of AIG now…doesn’t ownership carry any weight?




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  10. PD Shaw says:

    Yes, sam, you can dictate the terms of compensation going forward; you can’t rescind benefits already earned.




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  11. Bithead says:

    Which democrats have said that they support a, “narrative of the private busienss (sic) being an evil that must be controlled by the power ogf (sic) government,” or is that another of those pesky straw men? And I don’t suppose you have any support for, “WH becoming party city on the taxpayer’s (sic) dime,” either? Enjoy your windmills.

    Can YOU point to any that are arguing with it?

    And the typos are simple enough; Goes with the territory of typing on a cell phone.




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  12. Floyd says:

    A 91% tax rate for the purpose of punishment, without due process??
    AH!! So THAT’s what it means to be “Progressive”!




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  13. anjin-san says:

    Can YOU point to any that are arguing with it?

    In other words, you can’t support your own statement. Different day, same BS.

    Of which party did a member suggest recently that the AIG execs commit suicide?

    The roaring silence in response to this very valid point is noted.




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  14. Bithead says:

    Of which party did a member suggest recently that the AIG execs commit suicide?

    Boy you’ve got the some selective memory.

    Funny you should mention that. I was in the process of writing an article on that point, taking GRassley to task for being a useful tool.

    Thta point aside, perhaps you weren’t aware of this, but it turns out the Democrats in congress knew all along what AIG’s planning and reasoning was… for at least a year prior to the point which they were issued.

    So, first off, it seems I labeled this faux outrage correctly as such, and secondly, the democrats get caught in a lie yet again. I say again, this whole shooting match was about narrative maintainence.




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  15. Bithead says:

    n other words, you can’t support your own statement. Different day, same BS.

    Not really, but you just did.
    You do know that, right?




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  16. anjin-san says:

    Just saw Kay Bailey Hutchinson on the tv. She said, “either they give back the bonuses, or we will take them back”.

    Damn Democrats.

    Oh, wait.,,




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  17. anjin-san says:

    Not really, but you just did.

    Hey bit, I have not hear you arguing against wife beating. Its pretty obvious to everyone that you are, in fact, are in favor of wife beating.

    Wow, its really hard to employ bitsian logic… well, not really,

    (bitsy is also an anti-dentite)




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  18. James Joyner says:

    Wouldn’t this be struck down under the constitutional ban against bills of attainder?

    No. Technically, bills of attainder are criminal laws only.

    Damn Democrats.

    Who’s blaming Democrats? It’s true that Congress is dominated by that party but there’s bipartisan outrage (faux or otherwise) about the bonuses.




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  19. sam says:

    @PD

    Yes, sam, you can dictate the terms of compensation going forward; you can’t rescind benefits already earned.

    That last about benefits being earned is interesting. I’d like to know if the contracts are performance-based. If they are, then I don’t see any reason they need to be honored given the sequel.




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  20. No. Technically, bills of attainder are criminal laws only.

    It’s hard to argue that a bill the picks out a specific group of people and bumps their taxes up to 91% isn’t imposing a criminal penalty.




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  21. anjin-san says:

    Who’s blaming Democrats?

    You must be skipping over Bit’s remarks.




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  22. Phil Smith says:

    Well, Sam, supposedly these are basically deferred comp, and therefore the only “performance” required was to stay with AIG until you vested.

    Even if they were performance based, the performance formula was agreed to in advance. Most likely (based on personal experience with an AIG competitor) the formula is some variant of “Base Salary x (Objective Measure factor(s) + Subjective Measure factor) = Total Bonus”, where the each factor is limited to a certain fraction of the total multiplier; none are less than 0, and none go above some arbitrary number. As a result, even if we give an individual a 0 for subjective performance, if he hits his objective performance numbers, he’s getting a bonus. In fact, if there are three objective measures and he only hits one of them, he’s getting some level of bonus.

    He’s also probably already been fired.




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