Awkward

by Russ Roberts on March 17, 2009

in Financial Markets, Politics

I guess he was hoping no one would notice. FoxBusiness reports (HT: Drudge):

Senator Chris Dodd (D-Conn.) on Monday night floated the idea of taxing American International Group (AIG: 0.9468, 0.1667, 21.37%) bonus recipients
so the government could recoup the $450 million the company is paying to employees in its financial products unit. Within
hours, the idea spread to both houses of Congress, with lawmakers proposing an AIG bonus tax.

While
the Senate constructed the $787 billion stimulus last month, Dodd
unexpectedly added an executive-compensation restriction to the bill.
That amendment provides an “exception for contractually obligated
bonuses agreed on before Feb. 11, 2009,” which exempts the very AIG
bonuses Dodd and others are seeking to tax. The amendment is in the
final version and is law.

Also, Sen. Dodd was AIG’s largest
single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org. 

Dodd’s office did not immediately return a request for comment.

One of AIG Financial Products’ largest offices is
based in Connecticut.

Be Sociable, Share!

Comments

comments

21 comments    Share Share    Print    Email

{ 19 comments }

MnM March 17, 2009 at 12:26 pm

I know I shouldn't laugh, but…

JP March 17, 2009 at 12:27 pm

This is just too rich.

All the outrage on the part of politicians reminds me of a lawyer who gets snookered by his opponent in a negotiation and then saves face in front of his client by railing against his opponent's ethical failings and sharp practices.

David S March 17, 2009 at 12:30 pm

Okay, I realize that I'm looking for the silver lining here, but isn't it in some sense better for the government to tax income (something they do all the time) rather than void legal contracts between two parties (something I don't think they do all the time)? The result might be the same, but it does seem to me to be a better process at least.

OregonGuy March 17, 2009 at 12:41 pm

Bill of Attainder? No prollem. They don't read what they vote for, anyway.
.

Methinks March 17, 2009 at 12:48 pm

David, No. What they're doing is unconstitutional and no court will ever allow this law to stand.

This is a bill of attainder.

geoih March 17, 2009 at 12:56 pm

It's those damned greedy capitalists and their lobbyists. They're corrupting our public servants! Congress should confiscate all their property and throw them all in jail.

John March 17, 2009 at 1:05 pm

The same sentence in the Constitution that prohibits bills of attainder also prohibits ex post facto laws, yet that is blatantly ignored (for example requiring sex offenders to register though they were convicted before the registry existed).
While I agree that this special tax would fall under that category, it would not constitute accusing the recipients of the bonuses of committing a crime, rather it would just tax those bonuses at a ridiculous rate.
Not only do I believe this will survive the constitutionality test, I'll bet it will be used as precedent for the government to not only dictate minimum wage, but a maximum wage as well.

TrUmPiT March 17, 2009 at 1:15 pm

My car insurance carrier, 21st Century, was bought out by AIG. Initially, it looked as though they were going to drop the 21st Century name entirely. But lately there has been a flurry of mail to reassure the policy holders that the 21st Century name and logo will continue as before. Maybe AIG realized that all this negative press about lavish spending on trips and on bonuses would cost the company in policy cancelations. I also wonder how a failing company goes about purchasing other companies. I presumed they are using the TARP funds for these type of purchases. I wonder if they overpaid for 21st century on the theory that they better spend all that "free" taxpayer money in a hurry before somebody changes their mind. Just what was the inducement for 21st Century to sell? What golden parachutes did 21st Century's CEO and cohorts receive? When will the taxpayer rip-off end? Why is Obama continuing Bush's failed policies of crony capitalism? Why is there no just God to smite all these corrupt, venal politicians and slimey businesspeople with unfair political access and clout?

Morgan March 17, 2009 at 2:04 pm

100% unbelievable. When we bought AIG, we bought their existing contracts. We have no more right to create a tax to recover these bonuses than we have to create a tax to recover payments made to suppliers of computer equipment or janitorial services. Or to simply breach the contract.

Renegotiating or not renewing any of these contracts is an option. Rewriting the law to confiscate the payments is not.

This is a direct attack on the status of contracts under the law, in which one party to the contract can, after the fact, modify its terms by fiat (if that party is the government).

Lawerly types I talk to think that the government will find a way to take the bonuses back if politics demands it – perhaps by claiming that the recipients engaged in behavior that voided the contract. If so, that would have to be Plan B, after Plan A – just take it – fails.

Methinks March 17, 2009 at 2:09 pm

While I agree that this special tax would fall under that category, it would not constitute accusing the recipients of the bonuses of committing a crime, rather it would just tax those bonuses at a ridiculous rate.

I think any lawyer worth his salt will be able to argue that this special tax rate, levied only on this small subset of people, amounts to punishment without trial. The a confiscatory tax amounts to punishment because it is not levied on anyone else in the same income bracket. Therefore, these people are in effect being accused of and punished for a crime for which they did not receive due process. Beyond that it is a violation of contract and all laws regarding corporations. The government is clearly overstepping its bounds as it did during the great depression.

Of course,I may be wrong and this is the pretty much becoming the totalitarian state I left in the '70's. It looks more and more like that every day.

Methinks March 17, 2009 at 2:18 pm

Trumpit,

That's not even the worst of it. The government is using AIG to funnel money to banks (including foreign banks) which it doesn't have the legal or political ability to otherwise fund. You can think of AIG as a giant government money-laundering operation.

The "Just God" who smites is competition in a free market. Once politicians instead of fate and skill decide the winners and losers, you get this lovely mix of "…corrupt, venal politicians and slimey businesspeople with unfair political access and clout."

Obama is continuing cronyism because that's what politics is and he's a politician. If he didn't do that, he couldn't survive in politics.

From each according to his ability, to each according to his need, comrade. Get used to saying that and understanding that Barney Frank will be deciding both "need" and "ability" from now on.

Cheers March 17, 2009 at 2:24 pm

Yea, TRUMPIT, get 'em!

The only way they could have bought the company is with our money. There's no other way they could've done it. Not just that, but someone must've tipped 'em off that they were going to be getting money in 2008. THAT's how they knew in 2007 that they could afford it.

And not just that, but those dirty executives and their golden parachutes. If there's anything we know about insurance companies, it's not about the aggregation of risk, you're supposed to keep your company as small as possible and not diversify. That's why they'd have to have something on the side to close the deal.

Man, I hope you're not actually being sarcastic… Then the joke would be on me

John March 17, 2009 at 2:40 pm

Methinks,
I'm with you on this being a writ of attainder, however popular opinion seems to trump the Constitution.
Look at the trampling of rights that happens 'in the name of the children', because if you oppose X then you must hate children and are a bad person.
In this case any argument against this punitive tax, a tax levied 'to fight greed, corruption, and theft of taxpayer dollars', means that you obviously support those things and are a bad person.

I actually saw this coming as soon as the first bailout was proposed. I see an insidious attempt to set pay scales for work, starting with executive positions.
The argument being that since they are using taxpayer dollars, then the government should be able to dictate salaries. Once the rules apply to some companies then they will later be applied to all.
Incremental totalitarianism or paranoia, you decide…

Elisheva Levin March 17, 2009 at 2:42 pm

Congress could have let AIG go into Chapter 11 last spring and then the contracts could have been renegotiated as part of restructuring and the bonuses (or not) would have been AIG's problem.
Now, those contracts must be honored or we will see more turmoil, since if Congress can breach AIG's contracts, no one will be sure what contracts will be honored and which ones won't be. That is a recipe for chaos. We will soon find out if Congress respects the Rule of Law.

Methinks March 17, 2009 at 3:42 pm

John, Unfortunately I don't think you're paranoid.

I rest my hope on the fact that similar programs didn't withstand constitutional challenge in the past and a marginal PR firm could repaint this as it really is – a hardworking and dedicated employee giving his or her all and being punished because of the reckless greed and decisions of upper management. The trader is "every American" and no American would want the government to cap his wages as a result of a forced government takeover (not a receivership).

I hope, but I can only hope because it's clear we can't actually depend on the constitution. It is yet another contract which has been abrogated.

vidyohs March 17, 2009 at 7:42 pm

Well it turns out that Chriss Dodd et. al. knew about the bonus situation at least a years ago. Does that change how we should view Dodd and the rest of the sanctimonious assholes in government, well I think so.

Dodd even authored a bill that exempted bonuses from being prohibited or paid.

Now that the shit has hit the fan he and his buddy culprits are clamoring for a tax?

Gimme a fricking break.

Drain the cesspool in the beltway, fill it in, pave over it, and then scorch and contaminate the Earth there so badly nothing ever goes there again.

Make every politican talk to you and ask for your vote through your backdoor screen.

Tell every politician if he ever dares to violate your front door you'll shoot him on the spot.

Demand that every politician annualy bring his books and records to your accountant to audit in order to retain his job.

Find your politician and whip him with a 12' cattle whip if he doesn't do the job he is hired to do.

Castrate every politician if he attempts to breed.

Politician should be the lowest category on any job sheet, well below a McDonalds counter person.

Methinks March 17, 2009 at 8:20 pm

Vidyohs, Dodd is from my state and rumour has it that he's in trouble. Politically.

Bob D March 17, 2009 at 10:46 pm

You put your left foot in, to your open mouth. You should be in the federal pokey. That's what it should be all about!
Dedicated to Sen. Chris Dodd master buffoon of senate buffoons

brotio March 17, 2009 at 11:11 pm

I was casually listening to the news on my way home from a baseball game (YAY!!!!!), and I think I understood Dodd to say that the law was enacted while he was out of the office, or some other such bullshit.

Whatever. It's Bush's fault, anyway. (Sorry, I just couldn't resist a quick game of Pin The Quote On The Socialist Asswipe.) :p

{ 2 trackbacks }

Previous post:

Next post: