I was angered by the AIG bonuses. Sure, it's a bit of a pop symbolism issue, but I found it odious that these Typhoid Marys of finance - who ought to be unemployable for life, other than asking if you want fries with that, after all that they've done to their shareholders and the world economy - should get all those million dollar bonuses out of federal money, supposedly so they won't leave, when some already have and the rest probably should. Plus my anger reflected my belief that over-the-top executive compensation, as it's developed in the last decade, has not just been wasteful and misguided, but a primary cause of the global economic disaster. Burning the money would have been better for the U.S. and world economy than letting the people in these sorts of positions "earn" it by pulling monkeyshines that involved phony income plus all too real downside economic risk.
But 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.
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Unfair but balanced commentary on tax and budget policy, contemporary U.S. politics and culture, and whatever else happens to come up
My books and articles
- Bonfires of the American Dream
- Literature and Inequality
- Fixing U.S. International Taxation
- Getting It
- Decoding the U.S. Corporate Tax
- Taxes, Spending, and the U.S. Government's March Toward Bankruptcy
- Do Deficits Matter?
- Making Sense of Social Security Reform
- Who Should Pay for Medicare?
- When Rules Change
- Corporate Tax Shelters in a Global Economy
- Federalism in Taxation: The Case for Greater Uniformity
- My articles on SSRN
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About Me
- Daniel Shaviro
- New York, New York, United States
- I am the Wayne Perry Professor of Taxation at New York University Law School. My research mainly emphasizes tax policy, government transfers, budgetary measures, social insurance, and entitlements reform. My most recent books are (1) Decoding the U.S. Corporate Tax (2009) and (2) Taxes, Spending, and the U.S. Government's March Toward Bankruptcy (2006). My other books include Do Deficits Matter? (1997), When Rules Change: An Economic and Political Analysis of Transition Relief and Retroactivity (2000), Making Sense of Social Security Reform (2000), Who Should Pay for Medicare? (2004), Taxes, Spending, and the U.S. Government's March Towards Bankruptcy (2006), Decoding the U.S. Corporate Tax (2009), and Fixing the U.S. International Tax Rules (forthcoming). I am also the author of a novel, Getting It. I am married with two children (boys aged 24 and 21) as well as three cats. For my wife Pat's quilting blog, see Patwig’s Blog.
6 comments:
I could not agree with you more. Yes it is a slippery slope with 100% tax but if there was a time, this is it. My religious views make it difficult for me to comprehend the hypocrisy of their actions.(although hypocrits abound in my faith) While millions are starving and losing their jobs, these executives are giving themselves millions of our tax dollars. "to the gallows"
I'm not sure how you can claim that this is a bad deal, when nobody is sure who at AIG is getting the bonuses, much less who deserves them. AIG has plenty of room for successful people, even if the company is, in the aggregate, losing lots of money.
You have a point, Tax Rascal, that perhaps I ought to know more details before commenting. But the bonuses went to the division that lost all the money that wiped out AIG, and there's evidence that they were doing bad things and strenuously resisting transparency since at least 2005.
Look, when you've got a question about what should be done in such a situation as this, go to history. The common law system that this country is built on has precedents for dealing with these types of situations. Common law is 800+ years old, don't re-invent the wheel! The way to do it is through what's called a "derivative action," which is a lawsuit launched by the shareholders of a company against the managers. In this case, the US Government is a shareholder, so they can launch a derivative action against either (1) the managers who received the bonuses and/or (2) the managers who approved the bonuses (even if it was for themselves). If the government's lawyers can prove that the bonus structure was not in the interest of the shareholders, then those managers who approved the bonuses are personally liable for the bonuses and must pay those bonuses back to the company...and then the company will use that money for the interests of the shareholders... the US GOVERNMENT! Don't reinvent the wheel by breaking the sensible legal traditions we have.
The potential consequences of this "tax" could be a lot more money on the line for taxpayers. These bonuses were given to people who (as comptemptible as you might find them) were unwinding risky positions for the company. They were paid a "retention" bonus at the end of the unwinding. Who will stay now to unwind these positions for 0 dollars? Congress through their petty circus show have just put another trillion plus on the line with no chance of retaining the (again, comptemptible though they might be) people knowledgeable enough to unwind these complex trades.
Professor Laurence Tribe addresses the constitutionality issues here:
http://blogs.wsj.com/law/2009/03/18/would-an-aig-bonus-tax-pass-constitutional-muster-a-tribe-calls-yes/
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