The public is not happy about the $165 million in retention bonuses that A.I.G. employees got last Friday. A.I.G. claimed that, even though it booby trapped our entire financial system with poison-tipped credit default swaps-and needed $180 billion from taxpayers to avoid a catastrophic collapse-it needed to retain its “best and brightest.”For a while Geithner and Summers hid behind a flimsy “rule of law” argument, insisting that, abhorrent though the bonuses were, they were promised long ago and “the government cannot just abrogate contracts.”But, as some commentators started realizing in recent days, the government does write the tax code. Maybe the government can’t prevent the paying of the bonuses but it can just tax them right back. From Capitol Gains and Games:“And there you have it. Right there on the Form 1040 for the year 2009, just add three lines:
- Did you receive compensation from any firm(s) on the attached list?
- If so, enter the amount of all such compensation in excess of $250,000.
- Add this amount to your total tax liability.”
And so that seems to be exactly what the government is doing. As my colleague Siobhan just noted, a bill to apply a 90 percent tax on bonuses paid by any company that got more than $5 billion in bailout money passed in the house today. There’s another proposal that would impose a 100 percent tax on bonuses. Given the saturation coverage in the media and the public ire, some version will pass soon.It’s true that the amount of money involved here, $165 million, is peanuts compared to the size of the A.I.G. bailout, and that the economy faces bigger, realer problems than exacting retribution on a handful of greedy kids in suits. Getting the bonuses back is largely symbolic.But it’s not completely symbolic. If we’re lucky, taxing bonuses from firms that have received bailout money will help discourage the “best and the brightest” from applying their talents (such as they are) at failure-prone companies that are too big to fail.
