Sunday, March 22, 2009

As an owner of AIG, I protest the stupid and damnable "bonus tax"!

Let's say you owned a business or were a major investor in one. How would you feel if the US government suddenly decided to prohibit you from giving your employees compensation incentives to do good work and not jump ship to your competitors?

I'd be be pretty damn mad. And I am! And you should be too. Because as taxpayers we now are owners of AIG, Citibank, JP Morgan and a whole bunch of other major businesses -- and the House of Representatives is doing just that to all of them, by voting to place a 90% retroactive tax on compensation paid by such firms that takes the form of ...

"any retention payment, incentive payment, or other bonus which is in addition to any amount payable to such individual for service performed by such individual at a regular hourly, daily, weekly, monthly, or similar periodic rate."
Forget the possible resulting violations of the US Constitution -- that it specificially prohibits Congress from enacting ex post facto laws and bills of attainder, while protecting contracts.

"Bills of attainder, ex-post-facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation." -- James Madison, Federalist Papers, #44.
And forget that when Congress enacted the bailout law only last month it specifically stated that it would not apply compensation limits to preexisting contracts -- and that it knew full well of the bonuses at the time.

These are mere quibbles of Constitutionality and plain justice -- with some careful legal drafting and enough populist pressure on the courts, Congress can always get its will past whatever judicial qualms some judges might have about them. Just remember how all those honest and loyal Japanese-American citizens wound up forcibly placed behind barbed wire in concentration camps for the duration of World War II. What's a tax on financial executives compared to that?

But this tax ... it is so stupid! Why should the businesses that I have been forced to invest in be barred from structuring compensation packages to promote good management and the retention of key employees?

What is the benefit bestowed upon the nation by Congress in its wisdom, via this promotion of bad management? Well...

Is Congress's vengence being focused on punishing the wrongdoers? No!

The worst malefactors at AIG are gone. The new top management isn't taking bonuses. Those in the bonus pool are making sums that for most of us would be astronomical but that are significantly less than what they used to make. Driving away the very people who understand how to fix this complicated mess may make everyone else feel better, but it isn't particularly cost-effective. [Wapo]
Does it spare the honest, capable employees who could have had top jobs elsewhere, but signed on to help straighten out the mess at AIG? No!

Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president. "They've chosen to throw us under the bus," said a Financial Products executive, one of several who spoke on condition of anonymity, fearing reprisals. "They have vilified us." [Wapo]
Is it going to help enlist additional voluntary cooperation of healthy financial firms, which don't need government aid, in the government's future efforts to fix the finanical system? Ha! What do you think?

I gather that the blowup over the "bonuses" is already creating extreme reluctance by private parties to participate in ongoing and new government bailout programs that might subject them to similar firestorms in the future. [Dan Shaviro]

The financial-services industry is warning that the move to impose a steep tax on bonuses at companies that receive taxpayer aid may cause some banks to exit the Troubled Asset Relief Program before their competitors are healthy enough to do so, risking a new freeze of the nation’s credit markets.

“This will undermine the recovery efforts,” said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, an industry trade group in Washington. “It will decrease industry interest in participating in any recovery program and cast a pall over existing and future contracts.” [Bloomberg]
Well, at least this clawback of bonuses will cover a fair part of the cost of the AIG bailout, saving taxpayers good money there, right?

Um, AIG has received $173 billion so far, the bonuses total $165 million, so recovering 90% of them (at most) will recover, ... uh, carry the one ... 8.6 ten thousandths of the cost of AIG's bailout. Wow!

But AIG's total compensation for all its employees is outrageously high, and ending these bonuses will reduce it right?

No, and no. The $165 million is only about 3% of AIG's payroll of 116,000 employees ... and under the law all the bonus compensation can be rolled back into regular salary -- saving nothing at all! Simply reducing the effectiveness of its compensation structure.

OK, at the very least, all this Congressional outrage over the bonuses represents genuine and sincere Congressional concern over the waste and abuse of taxpayer funds.

So, if just 1% of Obama's $775 billion stimulus goes to waste and patronage for political favorites and abuse, Congress will spend 47 times as much time being outraged about it, right? And if just 1% of Congress's $1.8 trillion deficit for 2009 goes to similar waste, patronage for political favorites, and abuse, Congress's howling will be 109 times as loud, right? ... I doubt it.

Hey, just what is the benefit of this 90% tax supposed to be, anyhow?

To let Nancy Pelosi and the Democrats gain a percentage point in the polls by playing up to the ignorant resentments of the populist mob?

Frankly I've been kind of shocked by some of the normally reasonable and well-considered bloggers I read who've joined call for mob justice, as unjust and self-defeating and plain, yes, stupid, as it is -- such as at Econbrowser and Capital Gains & Games.

If anyone from either of those sites or anywhere else can tell me one good thing about this 90% tax, I'd like to hear it.

Otherwise, as an owner of these companies, I want that tax killed, and my bonus compensation programs designed to maximize the value of these firms reinstated NOW.