2009-03-16

Bonuses and taxes

I've been listening to the story about the $165 million in bonuses AIG is about to pay out. And the accompanying outrage.

If these bonuses were going to one of the divisions that is profitable, and they were significantly less than the profit, then I wouldn't have a major problem with it. But they're not.

According to CNN, they are going to one of the very groups responsible for the shambles they current AIG is:

In a letter to Geithner, obtained Saturday by CNN, AIG Chairman and CEO Edward Liddy said his company was taking steps to limit compensation in AIG Financial Products -- the British-based unit responsible for issuing the risky credit default swaps that have brought the company to the brink of collapse.

In the letter to Geithner, Liddy said the unit's 25 highest-paid contract employees will reduce their salaries to $1 this year and all other officers in the unit will reduce their salaries by 10 percent. Other "non-cash compensation" will be reduced or eliminated. But he told Geithner that some bonus payments are binding legal obligations of the company, and "there are serious legal, as well as business consequences for not paying."

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I understand that the new AIG CEO may be in a bit of a bind here. If they are contractually obligated to pay the bonuses, and the recipients are not willing to renegotiate those contracts, then they should pay them.

But that doesn't have to let them off the hook.

It occurred to me that the simplest way to deal with it -- without breakin any contracts -- is with the tax code. There's no reason Congress can't craft an income tax provisions specifically for bonuses like this, and tax them abt 99.9% or something like that.

This way, people still recieve their bonuses.
AIG doesn't have to break the contracts.
And the Treasurey recovers funds.

Fortunately, Senator Chris Dodd is already on it.

Later, Dodd told CNN he is considering an unusual approach to get the bonus money back.

"One idea we're kind of thinking about is a tax provision," the Connecticut Democrat said. "We have a right to tax. You could write a tax provision that's narrowly crafted only to the people receiving bonuses. That's a way maybe to deal with it."

Dodd said the notion is in the "earliest of thinking" and has not been settled on as a way to resolve the issue that has set off outrage in Washington and across the country.

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We may not be able to allow AIG to fail. But we can make sure we don't reward failure.

6 comments:

Junk Drawer Kathy said...

I hadn't heard about the tax provision. My God, I hope they can pull it off. The AIG reward-for-failure package disgusts me. I'd ask how those people can live with themselves, but I'm pretty sure they're waiting in line for their bonuses and laughing about it.

Alan said...

This actually sounds promising. Now if we could just come up with a way to make former president junior reimburse the treasury for all the mischief he caused....

Anonymous said...

I believe the bonus payout excesses at AIG are just the tip of the iceberg of what is happening with the other Wall Street bailouts including Bank of America. Working productive Americans are bailing out the same crooks that destroyed our economy along with 45% of the wealth in the world. Now the American taxpayers and our posterity will be forced to live a far lower standard of living with reduced prosperity and opportunities due to the accumulated national debt to fund the bailouts and once again we will pay the price.

Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. I believe Washington plans to monetize the debt in future years while they tax and destroy our remaining wealth by depreciating the dollar.

To stop this wealth attack, the Campaign to Cancel the Washington National Debt By 12/21/2012 Constitutional Amendment is beginning now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts

tstreasures said...

I was so happy when I heard that they are trying to find a way to tax the heck out of these bonuses. One of the provisions has to do with companies that are owned X% by the government and AIG would be the only company in this particular bracket. Works for me.

Pro said...

FALLOUT GROWS: Those who voted for the stimulus supported the clause to protect the AIG's bonuses. Obama's Own Stimulus Bill Protects the AIG Bonuses He Now Condemns —


http://www.butasforme.com/2009/03/17/obamas-stimulus-bill-explicitly-grants-aig-the-legal-right-to-hand-out-bonuses/

Kate Burton said...

I hope they can take care of this with a tax issue but I am still unclear about how contracts can be nullified with unions but not with thieves.