By a vote of 328-93, the US House of Representatives ignored the U.S. Constitution and allowed their emotions to guide their decisions. The House measure places a 90% tax rate on bonuses received by managers at AIG and other bailed out firms. The problem is this emotionalism is illegal.
Remember bills of attainder from civics class? The definition is: a legislative act that singles out individuals or group for punishment without a trial. Article I, Section 9, paragraph 3 of the US Constitution reads: “No Bill of Attainder or ex post facto law shall be passed.”
Let’s look at this 90% tax measure politically, economically, and ethically.
Politically, the House measure probably expresses the goal of getting ahead of what most representatives anticipate will be voter outrage over the bonuses paid to executives at bailed out firms at tax payers’ expense. It is hard for me to get vexed about the $165 million in contractual bonuses, an amount of money which is less than one thousandth of the $170 BILLION in three (failed) AIG bailouts. These bonuses were unopposed until a few days ago by Senator Dodd, Speaker Pelosi, Treasury Secretary Geithner, or President Obama, all of whom either knew about them or should have. House members want to manage the electorate’s anticipated anger, to direct it at the bonus scapegoat, and to deflect it away from this Congress’s bailout mania. Applying public choice theory, these officials want to avoid the political costs of their policy choices and maximize the benefits of doing so.
Economically, this is a bad omen. Congress has long felt it could effectively set minimum wages, despite the evidence of adverse employment effects of administered price floors set above market equilibria. The 111th Congress now appears to think it can set maximum wages too. An implication is that Congress assumes it can determine compensation better than decentralized labor markets. What is the evidence for this? I see none. And so what if bonuses are punitively taxed? What might we predict will happen as a consequence of this Congressional emotional outburst to base pay, or to other forms of compensation? And did all those that received bonuses at AIG fail to meet their goals? Does Congress care about these details? Will the list of executives who received bonuses also reveal what these people did to add to (or subtract from) shareholder value? If Congress feels compelled to punish, however blantantly against Article 1 Sec. 9 para. 3 this might be, shouldn’t it at least make an effort to distinguish between “good” and “bad” executives?
Finally, what are the moral implications of the House of Representatives passing the largest stimulus package in American fiscal history with a record lack of deliberation, and then becoming hysterical about a comparatively minor problem embedded in their own policies? It is like a father who simultaneously berates a teenage son or daughter for mismanaging their allowance and then increases that allowance. There is a word for saying one thing and doing another.
Does the House and Senate seriously expect the American people to believe Congress was unaware of the AIG bonuses when they voted for the massive bail out bills?
It is difficult, especially for one usually uncomfortable with sarcasm, to take the recent emotionalism on Capitol Hill at face value. They have got to be kidding. Do Representatives expect me to trust them to manage compensation matters, be impartial in shaping tax policy, and perform so many other economic policy tasks when they can’t manage their own emotions? So, exactly who are they trying to kid?
