This is Responsible Government?

The House passed one of their most asinine bills to date yesterday.

90% tax on bonuses paid by companies who have received over $5 billion in bailout money to employees with a household income greater than $250,000.

Think about that for a second. The US government just used tax law to punish capitalists. And they did just about everything wrong in it.

This affects around 12 companies, not just AIG. These are companies that aren't owned by the government, and that in some cases were forced to take the bailout money by Paulson and Bernanke months ago, under some retarded line about the money being to make sure "strong banks stay strong."

Also bear in mind that the bonuses in question (AIG) make up less than 1% of the bailout money promised to the company. This is very much the case for all the other companies affected by this tax. Yah, $146 million is a lot of money, but it shouldn't be the focus of all this rage. But it's easy to get the people riled up about, since all they hear is "bonus" and "fat cats" and "$146 million." The politicians go along because it blinds the people to the real issue - that the AIG is essentially laundering government bailout money to bail out other firms under the table. Yes, most of AIG's bailout cash is in fact filtering to Goldman Sachs and other banks who hold positions with AIG.

Besides, the same people passing this bill now were the ones who ALLOWED the bonuses in the first place.

And they were right to allow them.

These aren't performance bonuses, they're retention bonuses. What's the difference? AIG is shutting down all the arms that they should never have had in the first place. Investment in highly leveraged instruments, shell games, and the like. The problem is, these are complex businesses that only a small fraction of people actually understand. This isn't just "sell one million shares of IBM" here. These groups have managers, directors, and employees that understand how their accounts are set up, who their counterparties are, and what the hell they've been buying and selling. Not to mention how the systems used to do these transactions are used. Not everyone has the same trading program on their desk.

So, if they just send them out the door, then nobody knows how to shut down the business properly. Things will be missed, and it could end up costing hundreds of millions MORE in the long run. Instead, these employees were told they're going to be liquidated once their division is shut down, but that until then, they're needed. If you just got told you're getting shown the door in 6 months, and you have hundreds of thousands, if not millions, of dollars in the bank, are you going to stick around one more day? No, you're not. So the company offers them some extra cash to stick around and wind down their own business.

Are some of these people the same fuckups that got them into this mess? Absolutely. That doesn't change the fact that they have practical knowledge that nobody else does. They may be greedy. They may be clueless traders. But in the end, they know which buttons need to be pressed on their keyboard and the names and phone numbers of the people who will trade with them.

The fact that the tax is using household income as a base is a major issue. Some of these retained employees are NOT the millionaires. No doubt hundreds of secretaries, earning $30-50k/year are part of the deal. Anybody who works in a large office knows the secretaries have the real power and knowledge. So they get offered $10k extra to stick around for 3 months, which they think is a pretty good deal. Except their husband makes $250k a year as a doctor, completely unconnected from this financial mess. They just lost 90% of their bonus because their husband is a decent cardiologist. Is that fair? It suddenly seems a bit harder to damn the rich when the numbers change, doesn't it?

It also only affects bonuses. So the CEO who drove his company to bankruptcy is fine to make $1 mil in salary, but $1 mil in bonuses is taxed? Guess how the contracts get renegotiated.

And what about the employees at other companies that deserve the money? What about the ones at JP Morgan, which has done relatively well in this crisis, but has over that magical $5 bil mark in government money? Don't their employees, who dodged this bullet and made the company stronger than ever (relatively speaking) deserve something? At the very least, why should they be lumped in the same group as the AIG clowns?

No wonder so many of the recipients want to give the money back now. Some never wanted it in the first place.

This is a retroactive tax too. Some of these people have already left, having shut down their groups. They've spent some of the money, and now may be told they have to pay 90% of it to the government. Way to stimulate the economy.

And over all of this is the cloud of bad, BAD government. Out of fear of being called hypocrites, out of fear of their role in this being harped on, out of fear of the angry mob being fed by haphazard media reporting, and out of a need to deflect attention and look like they're doing SOMETHING tangible, the government (democrats and half the republicans) has decided to tax the hell out of a very narrow portion of the citizenry. Does this sound like a capitalist, democratic government?

What if they don't like how your pay is structured? What if they decide that small business owners paying themselves dividends instead of salaries is wrong? Or they decide that professional poker players are tax dodgers? What's stopping them from creating another heavy tax to discourage this? Hello precedent.

This is, once again, knee-jerk reactionism at its worst. AIG should have been allowed to declare Chapter 11 months ago, instead of being bought by the government. Then this situation would never have arisen. Instead, the government meddled, and has created such a mess that they keep getting more stuck in the tar pit they stepped into.

But hey, those in the financial industry are easy targets, despite the fact it comes dangerously close to abuse of powers, has constitutional concerns (depending on interpretation), and could be a precedent for a whole bunch of ugly. Maybe the Senate will have enough sense to rejig the bill into something that makes sense... or kill it entirely. Of course, that's not politically wise, and everyone knows that getting elected next cycle is more important than actually being useful.