The Senate this week significantly slowed the progress of a punitive 90 percent tax on bonuses for executives of companies receiving federal bailout money. Reflecting the cooling position of the White House, Majority Leader Harry Reid (D-NV) announced that the upper chamber would first debate a bill for national service followed by the 2010 budget. Last week, Reid planned to bring the bill to the floor right after it passed the House 328-93. So, what changed Harry’s mind?
President Obama’s recent statement that “We cannot govern out of anger” played a part, though this was also a significant change from what he had said just a few days prior. Obama first said he would “pursue every legal avenue to block these bonuses.” Therein lies the problem. This tax may actually be unconstitutional, and if the White House is not going to support it, then the Senate is likely to retreat.
The Constitution specifically outlaws bills of attainder, measures that impose punishments on a select group through legislation without trial. The tax currently being proposed is a direct result of the revelation that American International Group, the poster child of the recent federal bailout craze, was about to pay $165 million in bonuses to its top executives. Congress was outraged that AIG would have the nerve to make such a move, particularly after the federal government bought an 80 percent stake in the foundering company for the bargain price of $170 billion. Claiming that their punitive tax is not a bill of attainder is a bit disingenuous. However, the statements of politicians alone cannot be counted on to hold up in court. After all, politicians will say anything. Therefore, the burden of proof in the constitutionality of the tax lies in its impetus. Is it meant to punish greedy AIG execs, or is it meant to protect the massive, and unsolicited, support of the taxpayers?
On the other hand, the issue may just fizzle out. New York Attorney General Andrew Cuomo successfully persuaded at least 15 AIG bonus recipients to return up to $50 million in bonus money. He hopes to recover up to $80 million in total — the other $85 million was given to employees outside the U.S. and is therefore, as even he admits, out of his jurisdiction. Cuomo’s efforts may thus save the constitutional law professor in chief from getting into a protracted argument over constitutional issues. After all, the president needs to preserve his diminishing political capital for another day.
One area in which Obama is considering spending some political capital is his idea to regulate pay for all executives, regardless of prior federal involvement. If he wants “Atlas Shrugged” to further come to life, that’s one way to do it. Companies that cannot determine the salaries of their own management will take their business overseas, and executives who don’t get paid what they are worth could go the way of Rand’s protagonist, John Galt. Government has no business making decisions regarding pay in the private sector, any more than it does in making decisions on prices — an unconstitutional folly perpetrated before.
An interesting addendum: AIG is suing the IRS to recover $306 million in taxes, interest, penalties and court costs. AIG maintains that the IRS inaccurately determined the company improperly claimed $62 million in tax credits and that the agency also billed AIG for taxes it claims the company should have paid. Many see the lawsuit as the high point of gall, but the fact is, if the company did indeed overpay its taxes or was improperly charged by the IRS, it has a duty to rectify the situation for its shareholders, who are now predominantly American taxpayers.
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