by Artagnan
I'm concerned about Congress's plan to tax up to 100% -- the House recently voted to tax 90% of bonuses received by any member of a company that received $5 billion or more in bailout money -- of the bonuses that may or may not be given to certain members of AIG.
Let me clarify: I have no patience or sympathy for those executives who abused the financial system for their own gain, taking the American (and world) economy along with them. However, I have serious ethical problems with taxing their bonuses alone. A contract, written before the financial crisis, was legally agreed to by both parties and requires the payment of those bonuses. By making this law, Congress is essentially using its legislative power to invalidate a contract by making those bonuses disappear into thin air. The solution to this problem is to not make the mistake of negotiating contracts like this again, not to use legislation to effectively nullify legally binding contracts. When Congress bailed out AIG, they agreed to take ownership of all of AIG, not just the parts which they wanted. The fact remains that they either were, or should have been, aware of these contracts.
Do I think that those executives are morally entitled to those bonuses? Do I believe that they should take them? The answer to both of those questions is, obviously, no. However, I am wary of Congress using its legislative power to enact laws affecting less than 200 people, for the paltry amount of $165 million. Congress's time wasted on this measure surely cost the government a huge amount of money, when transportation, salaries, utilities, and the cost of security are factored in.
I realize that Congress is acting because of the public outcry--but I also believe in the rule of law. Congress -- on principle -- should not use its broad legislative powers to nullify contracts relating to such a small amount of people. It will lead to a slippery slope of government micromanagement and interference in private businesses--not only ones majority owned by the US Government--and, eventually, the disappearance of capitalism and the creation of a welfare state, with a healthy amount of Big Brother thrown in.
Thursday, March 19, 2009
AIG Bonuses
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5 comments:
You have no right to be concerned. I suppose you're a conservative? Look, nearly any major taxation bill that the government passes will most likely be overturned by the black-robed Supreme Court justices. We are not descending into socialism; the conservatives have cried this doomsday cry since Obama won the primaries. The fact is that America would never tolerate true socialism. Americans earn what they work for. That has always been and always will be, and when the government - IF the government - decides that a car-maker should make as much as a neurosurgeon, America would be up in arms, demanding a change in leadership. Republicans are upset because their "hard work" is being undone. So to use a cliched analogy, Republicans, you had the wheel for eight years, and now the Democrats are takin' it back, so don't whine that the music we're playing isn't your style.
I'm troubled by how loosely the word 'socialism' is used these days. Socialism is only a system in which the government controls all basic industries (healthcare, the military, the police force, etc.) and rationally regulates the private sector (outlawing the use of credit default swaps, not allowing corporations to lie in order to grant loans to people with faulty credit, etc.) The reason why "America would never tolerate true socialism" is not that true socialism is a bad thing (in my opinion, it is a good thing.) Rather, it is that Americans are all too often taught the McCarthyist stereotypes of "socialism is the same as communism" and "communism, no matter what interpretation of the system is in question, is always evil." The fact is that, in socialism, the government would be unable to "decide that a car-maker should make as much as a neurosurgeon," for the neurosurgeon works in a basic industry and, therefore, has a wage dictated by complex processes worked out in legislation that are based on experience, amount of patients, etc., whereas the automaker works in a non-basic industry and has a wage based only on the minimum wage and whatever its employer sees fit.
The fact that something was worked out in a contract does not mean that it should be upheld in all circumstances. Credit default swaps are insurance contracts that caused both the Great Depression and the current financial crisis. Does that mean that they should be upheld? No. The government should void ALL credit default swaps NOW for the integrity of the private sector. The same goes for bonuses: for the sake of the private sector, the government must usurp them so the money can be used to heal the private sector, not buy luxury yachts that were built by workers who make minimum wage. I do see, though, that the sum of money being taxed is small, a mere cell on the face of the $700 billion bailout plan, but it still can go somewhere and be useful. Moreover, the government effectively owns AIG now, though it has made little use of its ownership. If the government learned how to regulate the market and operate the banks that it now owns, I believe that much more money would be usurped and the deficit would not be of concern.
Under Rousseauvian principles, making a particular act (one that is targeted at a portion of the population, rather than evenly directed at the population as a whole) invalidates the government. (Of course, under Rousseauvian principles we don't have a government to begin with; that aside...) That concerns me somewhat. On the other hand, the bonuses are...questionable, to say the least.
I guess the point I would make is that just because something is officially legally binding/legal/constitutional doesn't mean it actually is or should be.
Also, see my previous post on communism vs. socialism vs. government regulation for reference on the communism/socialism point.
Finally, connotation-wise, I don't think "usurp" is the word you want, DoS.
@ WashDCDemocrat:
Actually, I'm a Democrat through and through. I even volunteer six hours per week for my local Democratic Congressperson. All I believe is that Congress should concern itself more with substantive governing and less with pandering to public opinion. This tax would have such a small effect on the stimulus, it would be like a drop of water in the ocean. And, believe me, I have every right to be concerned. This is, after all, America, where one can be concerned about anything.
@ DoS
Thanks for the clarification on socialism. You're, of course, correct. As to your second paragraph, I agree about the CDOs. Let me clarify again: I am not opposed to government regulation as long as it is productive. CDOs and other financial instruments should be regulated by the SEC. However, taking away the bonuses isn't regulation, nor do they constitute enough money to threaten the integrity of the private sector.
@ Sectori
I agree, the contracts never should have been made. However, the USFG did or should have known about these contracts when they bought AIG, and therefore should have been aware of the need to pay these bonuses. The contracts shouldn't be legally binding--but, unfortunately, they are. The rule of law is supreme here in our great nation, and I believe that we must follow it to the letter or risk losing the principles on which we were founded.
@Artagnan:
I'm not saying we should all break the law, but I am saying that not everything that may technically be legal should be. In other words, something should change. I don't know what, but that's one of the founding principles of any democracy: things are subject to change.
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