AIG Bonus Clawbacks Set Dangerous Precedent

Decrying the recent AIG executive bonuses as a waste of public funds the US House passed Thursday night a plan to tax back 90-100% of bonuses at the financial giant AIG and other similar bailout recipients. This legislation is in response to outrage on capitol hill over news this weekend that executives at the company received over $160 million in contract-promised bonuses.

This legislation should trouble everyone who works and pays taxes. It sets dangerous precedences that could be the beachhead the .gov needs in the future to leverage unheard of taxes out of the populace in the future. A laundry list of my concerns would include:

1. It undermines the sanctity of contracts. Contracts are the foundation of agreements between government, businesses, and individuals alike across the United States and the world. The fact that the .gov can legislate these contracts into essential nullification is ludicrous. If the government was unhappy with the terms of these contracts that these executives held they should have sued to have these bonus provisions removed. They didn't choose this route, however, because they knew they didn't have a leg to stand on legally.

2. It encourages retroactive enforcement of legislation. This tax bill essentially takes something that was legal yesterday and makes it illegal today, and then punishes the "transgressor" for something that was perfectly legal at the time of the "transgression". While at this point in time it's not dealing with criminal laws - but tax laws - there's nothing stopping this from spilling over into criminal law. At that point this precedent becomes dangerously oppressive.

3. Where does it stop? While this particular bill only targets bonuses of executives at bailed out firms at this point in time - it is not a stretch of the imagination that this policy of bonus taxation could be expanded to any company that the government has partial ownership of as "a waste of public funds" whether they've received bailout / stimulus money or not. From there the possibilities are endless. What about anyone's bonuses at these firms whether they are an executive or not? What is the definition of a bonus? What type of income can be legislated into "bonuses"? How about a nationwide "bonus tax" at that draconian rate? Crazy? The precedent is already there.

4. It's essentially a play on class envy to placate the masses for the sake of political expediency. What's really depressing is that most people don't realize that the irony of all of this is that if AIG had been allowed to file Chapter 11 instead of being bailed out they could have restructured these bonuses out of these contracts. Of course if our .gov had been that patient and had been responsible with taxpayer money and allowed that to happen we wouldn't be in this giant cluster anyway. However it is a world of "do something, anything" politics where some businesses are "too big to fail." Something had to be done, and the .gov used class envy to justify the wholesale piracy of contract-promised money from "those greedy, taxpayer-money-wasting bastards."

The enraging tail to this story is that all this indignation and outrage on capitol hill may very well be feigned. Several mainstream outlets are now reporting that members of the Obama Administration knew about the AIG bonus situation and remained silent. Over the course of the past few days it has come to light that Chris Dodd (D-CT) wanted to initially place an amendment in the stimulus plan to tax or remove these bonuses, and at pressure from the administration he removed them. The Obama administration in turn, has fingered the Treasury as the source from this suggestion, and Tim Geithner in turn pretends to not know what's going on.

All I know is someone sure as hell is lying.