Saturday, March 21, 2009

Bonuses bonuses bonuses

Yes, the AIG bonuses are atrocious

Yes, many of those executives do not deserve them

Unfortunately, passing this 90% bonus tax bill into law in order to recoup the bonus payment would be creating an unconstitutional law.

First off, the proposed law is an ex post facto law, a law passed after an act has been committed that acts retroactively to change the legal consequences of the act committed.

Second off, the federal government is prohibited by the Constitution from taxing property, and can only tax increases in wealth (wages, bonuses, dividends, etc..). The accession already occurred, and since ex post facto laws are illegal, modifying the law to tax the bonuses would likely result in a property tax, which is also illegal at the federal level.

Lastly, the law is clearly intended to punish a very select group of individuals without trial, namely the executives at the AIG financial unit, meaning it is likely a bill of attainder, also prohibited by the Constitution.

Besides these factors, has Congress bothered to think of the unintended consequences of their actions? Goldman Sachs and Morgan Stanley will raise capital from investors, return the necessary funds to the government to fall below the $5B threshold, and proceed to poach every last rainmaker from the four remaining large commercial banks JPMorganChase, CitiGroup, Bank of America, and Wells Fargo, effectively imploding them by grabbing their primary asset, people, thus concentrating power in these two investment banks.

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