I agree with both Tyler Cowen at Marginal Revolution, that this is receiving way too much attention and with David Boaz at CATO that the special tax recently passed by the house represents a very sad example of both creeping tyranny and lack of political leadership. There is also plenty of shame to spread around to the media outlets, like Fox News, and various bloggers, who have been stoking the fire and to the truly despicable people that have been tracking down AIG employees and making death threats.
Some thoughts on varous aspects of the discussion:
1. Person-specific taxes, which is essentialy what these taxes are, are a really, really bad idea. Can you think of a better way to stifle dissent?
2. The bonus tax obviously conflicts with the plain language of the constitution in two ways. It represents an ex post facto law and it is the very opposite of equal protection under the law.
3. If AIG is contracturally obligated to pay the bonuses (and if it was not it seems like this whole thing would have blown over long ago) then it should do so. Indeed, it is even in the interest of AIG's taxpayer owners that it do so because otherwise they will eventually get stuck paying the bonuses anyway, along with interest and legal fees, after the employees who did not receive bonuses they were legally entitled to sue the firm.
4. The real culprits here, it seems to me, are the government officials who did not sort this out when setting up the bailout of AIG and who then tried to cover up their error. It is not AIG's responsibility to help the government do a good job of setting up the bailout. In a sense, the bonus tax is the government's attempt to obtain a unilateral "do over" of the original bailout.
5. This whole thing reminds me of the occasional bursts of outrage about Congressional salary increases. As with those, the amount of money at stake with the AIG bonuses is deeply trivial in the context of a government that has spent well over one trillion dollars in the last eight weeks. In the end the populist frenzy about the bonuses functions to distract attention from larger and more serious issues involving the stimulus package and general response to the financial crisis.
6. There are important general issues in regard to the principal agent problem between shareholders of large public companies and the compensation that their top employees receive. Those issues are not solved by taxing AIG bonus recipients nor is the serious discussion regarding how best to address these broader issues furthered in any way.
It's really quite easy.
1 year ago