I am all for the outrage on AIG paying out millions of dollars in bonuses. I will even suspend my usual arguments about free market economies because this is a special case where if the government hadn't stepped in the company would have gone bankrupt and I would be slightly poorer than I am now as I would lose the $500 or so my AIG shares are worth.
If we don't want AIG to spend our money on bonuses that is fine, as shareholders we have a say as to how the company is run. The government could even just mandate that firms that get bailout dollars not pay exorbitant bonuses - I actually thought that had already been done, I guess it was not done retroactively.
Trying to recoup that money via taxes is a terrible idea. Absolutely terrible and stupid. In my opinion this is one of the biggest misuses of legislative power I have ever seen. The tax code is a tax code, not a method for implementing policy, and especially not a method for addressing people being pissed off.
By modifying the tax code Congress is able to implement a retroactive law, which is usually specifically prohibited by the Constitution. I am way more pissed off at Congressional Democrats for pandering to the pissed off people by using a completely ridiculous, unethical and illogical method to get back money than I am at AIG for paying that money in the first place.
For once in my life I hope the Republicans who are opposing this law succeed. This is a gross violating of the Constitution, and I am appalled that people actually support this subversion of the intent of the law.
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It's actually a little more complicated than this. What happened was that an emergency law was passed - before it went through congressional hearings and review. This is not a new law, just a tweaking of one. The government decided to put a 90% tax on exec bonuses for those that took a bailout (like AIG). What this basically means is that some exec at AIG is paid $200,000 a year. Except they hold back about 50 grand of this exec's salary and give it back in the form of a "bonus" at the end of the year. When, in reality, it is not a bonus at all. It's just part of your salary that you earned. So, you are being taxed on 90% of this so called "bonus" - and being cheated out of your whole salary for the year. It's a bit more complex, but that's the main gist of it. If you think about what that actually means, it is quite scary. Perhaps not for those that get millions as a bonus ... but for the exec making 200,000 it is. Because at the end of the year - you are being 90% taxed on money that should already be yours.
I do labor-law. I hear about this stuff all day long.
Tanya - interesting. Why on Earth are the executives paid they salary all year long? Why is the company waiting to pay out one huge "bonus" instead of paying them normal salary 12x a year?
I do agree that passing that law was a mistake, especially when the bonuses were guaranteed within the stimulus package bill a few months ago. I can't see the money collected will ever come back to common people...
Take care,
Jay
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