Taxing The AIG Bonuses

By Big Tent Democrat, Section Economy
Posted on Tue Mar 17, 2009 at 11:53:45 AM EST
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Via Atrios, Senate leader Reid proposes taxing the AIG bonuses:

Senate Democrats want to tax the controversial bonuses doled out to AIG employees who work for the division that led to the company's downfall. Senate Majority Leader Harry Reid announced on the Senate floor Tuesday that the tax-writing Senate Finance Committee will pursue a legislative fix in such a way that the "recipients of those bonuses will not be able to keep all their money — and that's an understatement."

[More...]

Senate Finance Committee Chairman Max Baucus, D-Montana, will propose a special tax within the next 24 hours, Reid said. "I don't think those bonuses should be paid," Baucus said Tuesday. At an unrelated hearing Tuesday at which IRS Commissioner Douglas Shulman was testifying, Baucus asked the nation's top tax official, "What's the highest excise tax we can impose that's sustainable in court?" Shulman did not respond directly, but Sen. Bill Nelson, D-Florida, chimed in to suggest the tax could be as high as "90 percent."

That's one way to get the bonuses back. Now about those counterparty payments, any stomach for an "excise tax" on those?

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Taxing The AIG Bonuses | 67 comments (67 topical)

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BTW (5.00 / 1) (#65)
by glennmcgahee on Tue Mar 17, 2009 at 06:45:52 PM EST

This Atrios, did it mention that Geitner knew all about the bonus stuff when he worked out the bail-out deal for them? The boy wonder. Now that we are outraged, so are they. I guess they just didn't figure we'd be paying attention while we worried about our retirement accounts and tried to hang on to our homes. We're all stupid you know.And Chris Dodd? Don't get me started. I'm asking what about all the money they sent for campaign cash to these politians. Where did those funds come from. Can we tax that money too?

: 5 Billion (none / 0) (#67)
by Amiss on Tue Mar 17, 2009 at 10:58:46 PM EST

I'm asking what about all the money they sent for campaign cash to these politians. Where did those funds come from. Can we tax that money too?

Was on one of the news shows tonite or today that $5 Billion came from Wall Street this past year.
Not chump change, not even for Washington.

Would this only apply to AIG? (4.66 / 3) (#9)
by nycstray on Tue Mar 17, 2009 at 12:15:09 PM EST

Or would it stretch to some of those other bonuses handed out within the bailout circle of failure?

Interesting.... (4.50 / 2) (#47)
by jbindc on Tue Mar 17, 2009 at 01:44:21 PM EST

Apparently, this outrage on Capitol Hill and at 1600 Penn Ave might be a bit misplaced.

Here's something neither Obama nor Grassley answered in their bellicose remarks Monday: Why did it take so long for the president and senior lawmakers to get so worked up? More troubling, why did it take so long for them to discover AIG planned to give huge bonuses in the first place?
Watching the coverage the past 24 hours, it would seem AIG just made public its plans to give top employees big bonuses. Wrong.
AIG disclosed its retention-bonus program more than a year ago, including bonuses directed to those handling the exotic derivatives that got the company and the country into this mess.
The bonuses were essentially a nonissue when AIG got its initial bailout money, almost $150 billion under President Bush in the two months surrounding the presidential election. Joe Biden, then the vice presidential nominee, came out strongly against the bailout. Obama did not.
Timothy Geithner, then at the New York branch of the Federal Reserve, was a huge proponent and architect of the AIG bailout. So if Obama had strong private opposition to the idea it did not affect his pick for the person who would oversee all bailouts.
The bonuses were again a nonissue when Obama himself increased the bailout to $173 billion last month.
It's not like Republicans were any quicker to stop this impending "outrage." Grassley might want AIG employees to seriously think about suicide now but the Iowa senator, who has been the senior Republican on the Senate Finance Committee for nearly a decade, was seemingly unaware of AIG's publicly announced plans.
If this were just a usual case of politicians acting like phonies people could roll their eyes and move on. But this time the competition among politicians to outdo each other in the outrage derby will soon put the White House, Congress and the country in a very tough spot.

But of course (5.00 / 1) (#51)
by Steve M on Tue Mar 17, 2009 at 02:18:46 PM EST

the reason the politicians suddenly care now is that the people care now. We all know that, I'm pretty sure.

The people who are upset now would have been upset back then, if they had known about the bonuses back then. If someone had said "hey, AIG is going to pay big bonuses using this bailout money," I'm confident the public would have been unhappy.

So I'm not really concerned that the politicians are hypocrites. In this instance, they're simply representing their constituents. They're acting unhappy because the people are unhappy. I'd feel differently if the politicians were actually the driving force behind the outrage, but they're not, and the fact that their outrage is phony is irrelevant to me when the public outrage is genuine.


Between Grassley's (none / 0) (#52)
by oculus on Tue Mar 17, 2009 at 02:23:42 PM EST

encouragement of suicide and Colbert's pitch fork, I'll be the bonus recipients are mighty glad they aren't on U.S. soil.


: I am confident (5.00 / 1) (#54)
by Steve M on Tue Mar 17, 2009 at 02:38:37 PM EST

that they are cowering all the way to the bank.

Except (none / 0) (#60)
by jbindc on Tue Mar 17, 2009 at 03:06:43 PM EST

I guess that we hope our politicians act in the best interest of the people on the information that the public may not have yet, such as the fact that they knew these bonuses were going to be paid out last year.

But of course, I know that's a pipe dream.....


I'm fairly certain (4.50 / 2) (#53)
by Makarov on Tue Mar 17, 2009 at 02:30:39 PM EST

that the AIG division that nearly sank the company is in London. While I assume some of the employees there may be Americans, a good share (perhaps a majority) may not be, and therefore are not subject to taxes from Uncle Sam.

I wish someone in Congress had the balls to end all this crap simply - and tax upper incomes more aggressively. Let's go back to what we had before Vietnam - with income above X (let's call it $500K) taxed at 90%.

Alternatively, they could pass a law limiting public companies to paying any individual more than, say, 20x their average worker. If the average worker makes $50K, then the CEO/execs/traders can make up to $1M. This would obviously have to include staff like those who answer the phones and vacuum the floors, with a provision against using outsourcing and/or temp agencies.

But the counterparty payments (none / 0) (#1)
by Steve M on Tue Mar 17, 2009 at 11:56:27 AM EST

were the whole point, weren't they?

Not my point (none / 0) (#2)
by Big Tent Democrat on Tue Mar 17, 2009 at 12:04:23 PM EST

They need to take some of the hit, do it through the tax code if you must.


Pleading ignorance...why would that not be a (none / 0) (#10)
by steviez314 on Tue Mar 17, 2009 at 12:15:34 PM EST

Bill of Attainder?

A punitive excise tax on a group of easily identifiable individuals? It's not related to a tax bracket, like a millionaire's tax, or a product, like an excise tax on crude oil.

Also, I assume you can't retroactively tax the 2008 payments.


I don't know (5.00 / 3) (#16)
by Big Tent Democrat on Tue Mar 17, 2009 at 12:21:55 PM EST

If only AIG is subjected to it, you may have an argument. I think the more likely result is a tax on ALL bailed out companies.

I think that will hold up just fine.


Nope - tax is wholly civil (5.00 / 4) (#29)
by scribe on Tue Mar 17, 2009 at 12:30:40 PM EST

and can be both retroactive and directed at a specific class of people or activity.

The trick - and it's so easy a law student could do it - is to draft the tax so that it is facially neutral, even though it clearly only applies to certain people or activities.

Thus, it would be perfectly legitimate to impose a tax of 90 percent on all compensation in excess of $50,000 paid and/or received by persons in regard to work performed in 2008 or thereafter in service of a corporation whose principal office in 2008 was in Connecticut and which in 2008 maintained an office in London, England, and which work pertained to CDOs, CDSs or any combination of them.

They used to be called "rifle shots", back pre the 1986 tax reform act. In those days, Congress would include obscurely-written clauses in bills, usually providing for tax relief. They would apply, for example, to all corporations incorporated in Delaware on July 15, 1916 (or some other obscure date) and presently having a principal place of business in Michigan (i.e., only to Ford Motor Co.), and were usually used to allow corporations (or wealthy individuals - Trump used to get some) to get around depreciation rules.

Funny, I think Reid might have been reading the comments here, particularly this, this and this .

Great minds think alike.


thanks for the info (5.00 / 1) (#32)
by Militarytracy on Tue Mar 17, 2009 at 12:32:03 PM EST

well done, (5.00 / 1) (#44)
by cpinva on Tue Mar 17, 2009 at 01:22:55 PM EST

grasshopper!

if you actually looked through the IRC, you would find multiple examples of code sections that meet this exact prescription, though on the surface they appear totally innocuous.

the best part is, they're nearly suit proof, so any AIG exec subject to it would just have to bite the bullet.


Could Be An Interesting ... (none / 0) (#50)
by santarita on Tue Mar 17, 2009 at 02:16:31 PM EST

backdoor way to increase taxes on the top 1%. If you can tax at a 100% a group of individuals that make a certain $$$ from one particular company or a group of companies, why not just take the next step and tax at a higher rate everyone that makes a certain $$$ amount. I'd be interested to see the Republican reaction.


Enough with... (5.00 / 2) (#56)
by kdog on Tue Mar 17, 2009 at 02:48:54 PM EST

backdoor shadyness...anything worth doing is worth doing through the front door in the light of the day.


: agreed. (none / 0) (#68)
by cpinva on Wed Mar 18, 2009 at 12:57:20 AM EST

anything worth doing is worth doing through the front door in the light of the day.

and really, it isn't nearly as much fun, if they don't realize it's being done to them.

Skinning that cat! (none / 0) (#3)
by Militarytracy on Tue Mar 17, 2009 at 12:05:32 PM EST

I'm not sure (none / 0) (#4)
by Bemused on Tue Mar 17, 2009 at 12:06:42 PM EST

such legislation could be constitutional that would so impose a tax on such a narrow and specific class. Equal protection grounds might exist facially and even more likely as applied if the express purpose of an act is to take money from people Congress doesn't think they should have.

Rational basis test (5.00 / 3) (#11)
by Big Tent Democrat on Tue Mar 17, 2009 at 12:16:59 PM EST

Not gender or race based.

"Iowa statutes taxing adjusted revenues from slot machines on excursion riverboats at maximum rate of 20 percent, but providing for maximum tax rate of 36 percent on adjusted revenues from slot machines at racetracks did not violate Federal Constitution's Equal Protection Clause; rational legislator could believe that legislation's grant to racetracks of authority to operate slot machines would help racetracks economically to some degree, even if its simultaneous imposition of tax on slot machine adjusted revenue meant that the law provided less help than track owners might like."

Fitzgerald v. Racing Ass'n of Central Iowa
539 U.S. 103, 123 S.Ct. 2156 U.S.Iowa, 2003.

Not sure how this will withstand a "morality" challenge.


there (none / 0) (#15)
by Bemused on Tue Mar 17, 2009 at 12:21:30 PM EST

the state articulated a rational basis for taxing slots at the higher rate

What's the rational basis for singling out AIG employees as opposed to other highly compensated people who work elsewhere and may have been paid a lot when their companies performed poorly.


Bailed out companies (5.00 / 4) (#19)
by Big Tent Democrat on Tue Mar 17, 2009 at 12:23:37 PM EST

is the likely provision to come.

Rational basis is simple - to insure that bail out funds are not directed in this manner as this undermines the Nation's confidence in the financial system.

But face it, when has the Court ever struck down on the rational basis test? Few and far between.

Once the standard is established, the chances of defeating the government on this are slim to none.


: IF (none / 0) (#26)
by Bemused on Tue Mar 17, 2009 at 12:29:35 PM EST

a law was enacted that imposed an excise tax on all monies received above a certain threshhold by all people who work at any company which received certain classes of federal assistance that would likely pass the rational basis analysis under the EPC.

Talking like that (none / 0) (#5)
by Militarytracy on Tue Mar 17, 2009 at 12:08:13 PM EST

you are just going to kindle wildly fresh lawyers and bottom of the ocean jokes.


do you have a problem (none / 0) (#12)
by Bemused on Tue Mar 17, 2009 at 12:17:29 PM EST

with the Equal Protection Clause? It kind of losing force if we decide not everyone is entitled to equal protection.

The problem is drafting legislation that imposes a tax on certain persons that other people who are similarly situated do not have to pay. I don't think there would be much question that a law that said AIG executives have to pay __% in excise taxes on this bonus money would be unconstitutional.

So, Congress would have to draft a law establishng a special class of income on which such an "excise" tax is imposed that would both apply to all the AIG folks and anyone else who has a portion of their income which meets the criteria. But, if the criteria are established in such a fashion that they in effect single out a tiny number of executives at a specific firm I think you still have very strong EP arguments.

That argument is only helped if you have a legislative history where Congressmen are stating their objective is to single them out for special taxation.

: I have no problem (5.00 / 3) (#18)
by Militarytracy on Tue Mar 17, 2009 at 12:22:55 PM EST

with the Equal Protection Clause. In the real world though there is also the politics of crime and the people are furious beyond all past social fury recognition. Fully expect any laws that protect the lawless to be HEAVILY CHALLENGED and freshly redefined whether you or I like it or not.

: No one (5.00 / 1) (#35)
by Categorically Imperative on Tue Mar 17, 2009 at 12:34:01 PM EST

is similarly situated to AIG in any meaningful sense that could be applied to the proposed tax. The government could easily articulate a rational basis for the law. There is no real danger of a credible EPC challenge, unless the courts decide that Wall Street crooks are suddenly a protected class meriting strict scrutiny.

: Heh (none / 0) (#14)
by Big Tent Democrat on Tue Mar 17, 2009 at 12:19:50 PM EST

Well, now you declare yourself the sole arbiter of the EPC.
Your moralizing is getting old quick I must admit.

It is a little scary.... (none / 0) (#17)
by kdog on Tue Mar 17, 2009 at 12:22:39 PM EST

what if next week the state decides to tax anyone with a non-violent drug arrest at 95%. Slippery slope and unintended consequences and all.

Better I think not to play legislative games, we own 80% and have the power to just say no. And if AIG balks, no more handoutsm, let them fail. If the contract workers balk, let them sue.


Hmm (none / 0) (#21)
by Big Tent Democrat on Tue Mar 17, 2009 at 12:25:18 PM EST

That would be a punishment issue and I think imposing it on released persons is a different ball of wax constitutionally speaking.

Of course, there are already forfeiture laws in place so if that is your concern, the horse is out of the barn.


A poor example.... (5.00 / 0) (#31)
by kdog on Tue Mar 17, 2009 at 12:31:33 PM EST

perhaps...I'm just thinking of congress arbitrarily taxing whatever sub-group is unpopular at any particular moment in time at 95% rates.

Yeah, we're all fans of it now because they are going after con-artists...but what about next time?


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