Dem Chairwoman: Let's Tax AIG Bonuses at 100%
Rep. Carolyn Maloney (D-NY), the chairwoman of the Joint Economic Committee, has a novel solution to the AIG bonuses flap: levy a 100% tax on the company's senior executives for every bonus payment that's not related to a commission.
Maloney is introducing legislation that would institute the tax, and apply it to any recipient of bailout money where the U.S. government has become the majority shareholder. After the jump, you can read her letter to fellow lawmakers urging them to sign on to her effort.
Dear Colleague:Like many of you, I was outraged to learn over the weekend that AIG is paying out another $165 million in bonus compensation. For a company that has required $170 billion in U.S. taxpayer assistance and is 80% owned by the United States Government, this is clearly unacceptable. That is why I will be introducing legislation that will instruct the Secretary of the Treasury and the Internal Revenue Service to develop guidelines that tax at 100% any bonus compensation that is not directly related to a commission for any recipient of TARP funds where the United States government is the majority owner of the company. This will allow AIG to continue to meet their "contractual obligation" to pay these bonuses, but will ensure that the recipients are not allowed to keep this money.
If you would like to cosponsor this legislation or if you have any questions, please do not hesitate to contact me or Edward Mills in my office at (202) 225-7944 or edward.mills@mail.house.gov.
Sincerely,
CAROLYN B. MALONEY
Member of Congress
Josh
Matt
Eric
Brian
Sounds good to me, stupid question though: would there a problem in this case with the constitutional prohibition against "Bill of Attainder"?
March 16, 2009 7:03 PM | Reply | Permalink
I think you could get around the bill of attainder problem with the proposed language -- "every bonus payment that's not related to a commission" -- but I don't see how you get around the ex post facto problem, at least for bonuses that have already been paid.
March 16, 2009 7:25 PM | Reply | Permalink
I suspect it could be written such that anything that happens during calendar 2009 (or later) could be taxable.
March 16, 2009 8:07 PM | Reply | Permalink
Its a tax, not a criminal penalty. Thus, no ex post facto problem.
March 17, 2009 9:03 AM | Reply | Permalink
Bill of Attainder and Bill of pains analysis applies only in the criminal setting and does not apply to civil income taxes seeking only $$$$. Likewise, civil tax law can be made retroactive without violating ex post facto clause.
March 17, 2009 1:29 PM | Reply | Permalink
She must have been reading TPM, because this suggestion was on one of the boards here. I forget who was the poster.
March 16, 2009 7:15 PM | Reply | Permalink
Hokey smoke, it was me!
March 17, 2009 3:31 AM | Reply | Permalink
I suspect that a lot of people had the same thought.
March 17, 2009 9:08 AM | Reply | Permalink
That poster was me, though others may have said the same on threads I have not read. The difficulty I suspect is that many of those AIG execs at issue are not subject to US income taxes as AIG FP was primarily a London operation.
March 17, 2009 1:32 PM | Reply | Permalink
If they're U.S. citizens, any of them, most of their income is taxable. So, it will be interesting, are 3% U.S. citizens? 43%, 63%, what?
March 17, 2009 1:53 PM | Reply | Permalink
I wish Maloney were my Congresswoman. She is my new heroine in the House. More Democrats like this please...lots more.
March 16, 2009 7:17 PM | Reply | Permalink
Wouldn't that be a bill of attainder?
And anyway, congress ultimately can just change whatever laws they need in order to take these bonuses away.
March 16, 2009 7:23 PM | Reply | Permalink
They are being taxed, not found guilty of a crime and punished. That means its not a bill of attainder. Congress couldn't have done this under the Constitution as originally drafted, but the 16th Amendment gave Congress authority to "lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
March 17, 2009 9:18 AM | Reply | Permalink
I was over hasty in dismissing the argument that its a bill of attainder. I still don't think it qualifies (if done correctly). There's a good argument to the contrary though.
March 18, 2009 11:48 AM | Reply | Permalink
Except that according to Chuck Todd, the AIG money did not come from TARP -- it came directly from the Fed. How could Congress not know this?
March 16, 2009 7:38 PM | Reply | Permalink
Exactly. I'm surprised she missed this.
March 16, 2009 8:02 PM | Reply | Permalink
Are you sure? Poking at google I turn up this article on the Economist from November, saying in part:
I.E. the initial, larger (?) part of the AIG bailout came from the Fed, but a substantial supplement to that bailout was later issued through TARP. As Rep. Maloney describes the bill, this should be enough to trigger it (as long as the "where the United States government is the majority owner of the company" condition technically applies). Does this sound about right to you?
March 16, 2009 8:03 PM | Reply | Permalink
Because they're too busy grandstanding.
Those bonus checks have already been cashed and shipped off to the Caymans. It's not coming back. Just make AIG repay the money and move on. Sheez.
March 16, 2009 8:06 PM | Reply | Permalink
What's the point of making AIG "repay" the money? Talk about futility, that's just the government giving AIG our tax dollars then AIG giving it back. The only thing that has any meaning is trying to claw back the money from the bonus recipients.
March 17, 2009 9:35 AM | Reply | Permalink
If you claw it back from the recipients, it's still just our own money coming back since it was our money they got in the first place.
Like the government should spend its time chasing down 5,000 different people to get back as little as $1,000 each instead of just getting the total sum back from AIG.
And many of these people aren't US residents/citizens so the tax proposal won't work for them.
March 17, 2009 9:40 AM | Reply | Permalink
Its quite different. We are told by the financial powers that be that we need to give taxpayer money to AIG to keep the financial system from collapsing. Thus, any money taken from AIG will need to be given back to it. That's not true of money taken personally from the executives of AIG.
The tax proposal works fine to the extent that they have assets in the United States.
March 17, 2009 9:47 AM | Reply | Permalink
Exactly how many do you think have assets in the US? One-tenth? A third? One half? What about those who don't have assets here? Do they get to keep the money?
This idea is so patently stupid . . .
March 17, 2009 10:05 AM | Reply | Permalink
I have no idea how many have assets in the United States. (And if I was one of them, I would move those assets out of the United States to the Cayman Islands ASAP.)
For those that don't have assets in the United States, I would have the IRS get a judgment against them on which the IRS could collect if they ever move assets into the United States. It might also be worth exploring whether the judgments can be enforced on foreign assets, but I have no idea whether that would be practical in this situation.
March 17, 2009 10:24 AM | Reply | Permalink
As if they're going to move assets into the US when they know uncle sam is waiting to snap them up?
All of this (which could easily take years) instead of just making AIG give back the money?
This is just a silly theoretical argument since (a) we won't be able to tax 90% of the people who got the bonuses and (b) that bill will NEVER pass.
March 17, 2009 10:33 AM | Reply | Permalink
It may be difficult to collect the funds from the individual executives, but taking the funds back from AIG is absolutely meaningless.
March 17, 2009 11:17 AM | Reply | Permalink
As for this tax business, even if AIGFP were a direct branch of US AIG, non US citizen bonus recipients could not be held to pay a single penny of US tax.
Consider this analogy. Would US resident-citizen factory workers building Hondas, Toyotas, BMW and Mercedes cars here in the US, ever, ever be libel for German or Japanese income taxes?
Of course not.
It's exactly the same with the AIGFP. As long as these non-US citizen employees don't live in the US, they are completely and totally out of reach of our tax laws. In fact, any US assets they have are also completely and totally out of reach of our income tax laws. These people don't work in the US, these people aren't US citizens or US residents. They are no more bound to our tax laws than US factory workers building Hondas in Ohio.
As I said above, even the US citizens may be (technically) out of reach if they haven't lived in the US in a great while or don't plan to return. While those people may legally be on the hook, it will not be At All easy to collect from them. Tax scoffs are often not subject to extradition treaties.
Regarding the above post, you're exactly right. Taking the bonus money from the corporation would amount to nothing more than moving the deck chairs. All money is fungible. Worse, the bonus money would still be in the hands of the bonus recipients.
As I've said above, I believe the only effective way to claw back the money would be to find evidence of fraud. If the bonuses were awarded fraudulently, the laws of the UK would apply. Extradition would be very likely.
Were the bonus recipients threatened with criminal prosecution if they refused to immediately return the money, I expect a large proportion of the funds would be back within days.
Another possibility is that our government could punish the company for this stupidity by putting them in technical receivership (bankruptcy), thus taking complete possession of the entire company (the remaining 20% we don't already own).
Bankruptcy would also allow the US government to decide which of the credit default swaps to honor, and at how many cents on the dollar. Though I suspect the reason AIG hasn't been completely nationalized is that our government doesn't want this responsibility.
March 17, 2009 4:22 PM | Reply | Permalink
If Germany or Japan wanted to try to impose such a tax, I see no reason why they couldn’t do so, but I seriously doubt they’d be able to collect the tax unless the US resident-citizen factory workers have assets in Germany or Japan.
That may be true based on the existing tax laws. I’m not familiar enough with them to opine. Nonetheless, the proposal is to enact a new tax law, so the existing tax laws aren’t relevant. If your position is that Congress lacks authority under the United States Constitution to impose such a tax, then I’d be interested to know what provision you believe imposes the bar.
To my thinking, the question is whether the United States could actually collect the tax if its imposed by Congress. I suspect it would be problematic to collect on foreign assets. I don’t see a problem with collecting against assets in the United States.
I suppose it’s also possible that some treaty poses an obstacle to Congress imposing such a tax. I’m not familiar enough with international finance law to say.
I don’t see a need for extradition. We aren’t trying to imprison anyone. We just want to get at their assets.
The Bankruptcy Code also has clawback provisions. I like the idea of forcing AIG into some special, limited form of bankruptcy. Congress appears to be running with the tax idea though.
March 17, 2009 5:14 PM | Reply | Permalink
I love it. It'll never pass but still, at least she's saying what we're all thinking. Kind of like when Kucinich submitted a bill to impeach Cheney. These Don Quixote moments are inspiring if nothing else.
March 16, 2009 7:44 PM | Reply | Permalink
Silly.
Retention contracts are not give-away bonuses.
Sherman is right on, on this. It's a total distraction from something 1000x bigger.
http://tpmdc.talkingpointsmemo.com/2009/03/rep-sherman-treasury-could-easily-get-back-those-aig-bonuses.php
For some reason comments have been disabled after 2 were posted in the Sherman thread..
March 16, 2009 7:52 PM | Reply | Permalink
Several good ideas seem to be working their way up the ladder. Which only shows how important the blogs are now. And how quickly ideas catch on. And move up!
March 16, 2009 7:55 PM | Reply | Permalink
You mean people actually read what we are saying? I kind of picture myself as being in a dark room talking to myself.... ;)
March 17, 2009 10:31 AM | Reply | Permalink
They read your words. But they can't "see" you! :)
March 17, 2009 1:35 PM | Reply | Permalink
Great, but this will only cover the employees filing their taxes in the US. I thought a major part of AIG-FP was based in the UK.
March 16, 2009 8:30 PM | Reply | Permalink
How dare you disrupt a good lynch mob in the making by telling them the people they want to hank aren't at hand.
March 16, 2009 9:17 PM | Reply | Permalink
Wait! Now we know why Obama retained "extraordinary rendition" powers. He's gonna kidnap the AIG employees (economic terrorists) from France, the UK, etc. and have a little party at Gitmo. It's all starting to come together...
March 16, 2009 9:40 PM | Reply | Permalink
I dislike the AIG gnats as much as anyone, but Congresswoman Maloney needs to read the constitution.
She is facing 3 hurdles here...
Unreasonable seizure.
Lack of due process of law.
Taking private property for public use without just compensation (100% is taking).
March 16, 2009 11:50 PM | Reply | Permalink
Its a tax, not a seizure or a taking (except to the extent that all taxes are seizures and takings). Congress has authority to tax income under the 16th Amendment.
March 17, 2009 9:31 AM | Reply | Permalink
No problems here. you need to read 16th and ask yourself how ordinary income taxes are collected without violating the straw obstacles you reference.
March 17, 2009 1:36 PM | Reply | Permalink
On the other hand,
So those who think ex post facto is a problem are just misinformed.
Here is the common definition of Bill of Attainder:
Application here depends, in part, on how broadly one interprets "punishment." If it is taken in a narrow sense, then there is no problem, but if any legislative act that might have even an incidentally punitive impact is included, then we have yet another problem for Madam Chairwoman.
March 17, 2009 12:01 AM | Reply | Permalink
You are simply mistaken. These issues have been litigated and civil tax laws are free from expost facto and bill of attainder analysis. If you are old enough you would remember Clinton rsaised the hightes income tax bracket to 39.6% and applied this raised rate retroactively in 1993 when his budget passed. This was litigated and upheld by the Supremes as not being violative of the ex post facto clause or bill of attainder prohibition. Spend more time in the library.
March 17, 2009 1:41 PM | Reply | Permalink
Sad to say, Rep. Carolyn Maloney's tax plan is 100% Bologna.
Sure, the 100% tax sounds good at first light, but even a cursory look into the details proves how ridiculously ineffective the remedy would be.
The reason this tax would be nearly worthless is because the an AIG division in question is Based in Britain! UK resident citizens aren't AT ALL subject to US laws. Maloney is either an idiot, or she knew she was grandstanding when she made this proposal. I tend to believe the latter.
While there are certainly a handful of US citizens among the bonus recipients. A 100% tax would collect absolutely nothing from any recipients that are citizens of the UK, France, Canada, Germany, etc... Even collecting the tax from US citizens who are permanent residents of the UK might be quite difficult.
My guess is that the only way to really claw this money back will be to allege that the bonuses were awarded fraudulently. Receipts of fraud must be returned. Failure to return fraudulently acquired funds is a criminal offense in most nations, often punishable by imprisonment. There does seem to be some evidence that these bonuses were in fact awarded fraudulently.
The real problem here isn't the men who received the bonuses, it's the CEO that ignored the secretary of the Treasury and awarded them anyway. AIG is owned by the US government, the government needs to exercise its control and immediately fire the current AIG corporate heads. In their place, new corporate heads should be appointed that will give far more than lip service to the Secretary of the Treasury.
In the mean time, were the White House to publicly threaten individual prosecution of any and all bonus recipients who did not immediately return the funds, I think an awful lot of the loot would be back in AIG's coffers within days.
March 17, 2009 1:19 AM | Reply | Permalink
The Brits can tax them, then, and they don't have any pain-in-the-ass-Constitution to fret over. They just vote and do it. Then they can settle up as part of the international effort!
March 17, 2009 6:41 AM | Reply | Permalink
Congress absolutely has authority to tax them, and the ability to collect the tax, to the extent that they have assets in the United States.
March 17, 2009 9:26 AM | Reply | Permalink
Congress has the right to tax UK citizens?? Now, that's a new one!
Then you propose that the government spend its time trying to see if they have US assets and going after those? I thought the tax was going to be on the bonus. But just in case you can't get those back, go after their vacation house in Martha's Vineyard?
The thirst for blood is making you delusional.
March 17, 2009 9:46 AM | Reply | Permalink
There's nothing new about it. Haven't you ever known anyone who lived in one state and worked in another? If so, your friend likely had to pay income taxes in the state where he worked, even though he wasn't a citizen of that state. It's the same thing here. To the extent that the British subjects did business in the United States and have assets in the United States, its perfectly valid for Congress to tax them.
March 17, 2009 9:53 AM | Reply | Permalink
No. It's. Not.
There's a full faith and credit act among the states within the US. There is no such thing with another country.
If they work and live in the UK, they pay UK taxes. Period.
Using your analogy, the Brits could tax US citizens who work for AIG in New York.
March 17, 2009 10:10 AM | Reply | Permalink
I believe you misunderstand the function of the full faith and credit clause. That doesn't give the taxing state any authority it didn't already have. What it does is require the state of residence to honor (i.e., give full faith and credit to) the laws of the taxing state. That means that the taxing state can go after your friend's assets even if they are in the state of residence.
Because there is no "full faith and credit" clause with Britain, the United States' ability to reach assets located in Britain will depend on treaty obligations. I have no idea what treaties there are, or whether Britain would honor them.
To the extent that the AIG executives have assets in the United States, though, that's a nonissue. The United States doesn't need any help from Britain to reach those assets.
March 17, 2009 10:18 AM | Reply | Permalink
I asked you earlier: What about the probably 90% of the UK employees who DON'T have assets in the US? Do they get to keep the money?
That's why going after the individuals is so scattershot and silly. Running all around the world trying to round up money that's probably already spent.
We have contracts with the Corporation, not the individual employees so go after the Coporation. If AIG wants to go after its own employees to get the money back, that will be their headache.
March 17, 2009 10:23 AM | Reply | Permalink
I've given my answer to that question above in response to the comment where you asked the question about 20 minutes ago.
March 17, 2009 10:28 AM | Reply | Permalink
The UK residents can only be taxed on income earned in the US. If a UK person is paid by a UK company, despite the fact that the ultimate parent is a US company, there is no nexus to the US and therefore no tax. The AIG Financial Products company is founded and headquartered in the UK, so the UK employees receiving the bonus can not be taxed in the US.
March 17, 2009 10:41 AM | Reply | Permalink
What exactly is "AIG Financial Products"? Do you know? I don't. The news reports that I have read characterize it as a unit or a division within AIG, not as a separate corporation. If that's the case, then it sounds to me like a U.S. company, regardless of where its offices are located. I couldn't find an organizational chart on the AIG website though.
Also, are the taxation restrictions that you discuss based on existing statutes or on some limitation that the courts have read into the 16th amendment? If they are only statutory, then they present no obstacle to Congress. As far as having a nexus to the United States, I would think the fact that the company is receiving funds from the United States would suffice, but constitutional tax law is pretty far from my area of expertise.
March 17, 2009 11:42 AM | Reply | Permalink
I believe AIGFP is a separate corporation. It would be hughly unusual if it was a branch of a US corporation because that could make it subject to US regulatory laws. The reason AIGFP was set in London was to escape the stricter US securities regulations, so leaving it as a branch would defeat the purpose.
The US has no authority to tax foreign citizens, unless there is an effectively connected business in the US. It's not a matter of statutory law or constitutional law. The US can not reach beyond its borders to tax non-citizens.
March 17, 2009 3:44 PM | Reply | Permalink
AIG Financial Products is a separate corporation, but its incorporated in Delaware (United States), not the United Kingdom. Here is its corporate record with the Delaware Department of State.
March 18, 2009 1:17 PM | Reply | Permalink
Moreover, US citizens living abroad are in fact subject to US income tax on all their foreign income over $87,000 (with a deduction for foreign income tax paid). It's pretty crazy, and I'm guessing that most people don't report it, but if you're living abroad (as I am) you're still legally required to file every year. For 2007 I had to pay $1800 on my foreign-earned income because I hadn't been out of the country for a full year, and I now have to re-file to claim it back.
March 17, 2009 10:01 AM | Reply | Permalink
What are you talking about? These aren't US citizens. They are UK citizens working for a UK division of an American company. They pay taxes in the UK.
March 17, 2009 10:13 AM | Reply | Permalink
And you also have to pay taxes to the UK even though you are a US citizen, correct?
March 17, 2009 10:31 AM | Reply | Permalink
Ok, this makes absolutely no sense. I heard on morning blow this morning that the aig unit that caused the implosion has only lost 41 billion dollars. I know it's a hell of alot; however, if the unit lost 41 billion, why in the f*ck have we pumped 170 billion into the company? I don't understand.
I am at a loss on this high finance stuff apparently. Why not just let this whole fiasco implode? Why isn't a treasury official in charge of this f'n company? We own it allegedly. What we own is air, but we own it. Put a treasury official in there and take it the f'k over now.
March 17, 2009 8:06 AM | Reply | Permalink
But - but - but -
How is AIG going to keep all that great talent if they can't give bonuses?
March 17, 2009 9:20 AM | Reply | Permalink
The solution to this is ridiculously simple. AIG (and all the others) still has its hand out. No more money until the bonuses come back. Take it or leave it.
March 17, 2009 10:23 AM | Reply | Permalink
Bonuses "not directly related to a commission" at a few of the bailed out corporations?
The people who got the bonuses at AIG can claim all their bonuses were "directly related to a commission."
Instead, they should tax at 100% any compensation above $400,000/year to anyone at a bailed out corporation.
March 17, 2009 12:43 PM | Reply | Permalink
This is great. Somebody was proposing this on TPM yesterday and joined them in it. It's a great idea.
No one escapes the IRS!
March 17, 2009 12:44 PM | Reply | Permalink
Also, why only the "company's senior executives"?
Someone at AIG who received a $5 million bonus who isn't a senior executive should get to keep it?
This makes no sense.
March 17, 2009 12:46 PM | Reply | Permalink
Another solution: Take over the POS, sell it off piece by piece, and fire all the idiots who work there (clarification: they are all idiots).
Look, we own AIG now, and we should act like it. First to go: The corrupt, criminal board members and Liddy.
March 17, 2009 12:50 PM | Reply | Permalink
supposedly this derivatives shop is in the UK - how are we going to tax income for UK residents?
March 17, 2009 1:00 PM | Reply | Permalink
So we want to tax them to get back tax money we've already given them so we can give them another $30 billion in tax dollars? Does anyone else hear Daffy Duck in the background singing "Merry-go-round Broke Down"?
Seriously, how ridiculously stupid does everyone need to be?
Just stop the bailouts!
March 17, 2009 2:34 PM | Reply | Permalink
For UK citizens, it's not that hard:
Gordon Brown wants all kinds of US cooperation on financial reform. We simply ask them to tax these bastards and use the money for stimulus (ie. it helps us in the end). I think the UK would be cooperative, since they are more critical of these financial shenanigans than many in the US are.
March 17, 2009 3:04 PM | Reply | Permalink