Lately, news outlets have been rambling about AIG handing out millions of dollars in (contractually obligated) bonus money which was acquired through TARP funds. On Thursday the House passed its solution: H.R. 1586, which would impose a 90% income tax on all such bonus money over $250,000.
This brings up several issues to consider:
- Is this a bill of attainder? It is explicitely prohibited in the constitution to use legislation to target or punish individuals, or a particular group of people. Many consider this bill to be unconstitutional, although the FISA bill was ex post facto, and that didn’t stop anybody.
- Congress voted to give the Treasury Secretary control over the TARP funds without any checks or balances. Had congress simply let AIG file bankruptcy, we wouldn’t be having this discussion.
- Congress is exercising more control over the inner workings of financial institutions through this legislation. History has shown that unintended consequences often result from government interference; e.g., limiting the pay of CEO’s of financial companies, which will send the best talent to the companies that weren’t bailed out and have no such restrictions.
- AIG could simply raise bonuses by 10 times to compensate for the tax. Congress has already proven their determination to not let them go bankrupt, so they have less incentive to make wise business decisions since the federal government is willing to absorb the losses.
Most concerning is #1, the constitutionality of this bill and Congress going beyond their legal authority. This sets a scary precedent for what Congress may be able to do in the future by targeting other groups for whatever reason they feel.
Representatives Lee Terry and Adrian Smith opossed this bill, but Rep. Jeff Fortenberry voted in favor of it.
