Punished Enough

[rowyn]

I wasn't going to say anything about the AIG bonuses. Really, I wasn't, because I think the whole furor is silly, making a huge issue over a tiny symptom.

Then I read this.

Short version:

It is not possible, under current US tax law, for an employee to return income to his employer and have that money not counted as part of the employee's income.

So, those who got bonuses have the following options:

(A) return the full bonus to AIG, in which case they will owe taxes on the full amount of the bonus anyway.
(B) donate the full bonus to charity, in which case the alternative minimum tax means they probably still have to pay taxes on all or most of it.
(C) keep the bonus and use it to pay state and federal taxes which -- if Congress passes the House's version of the punish-AIG-bill -- will probably exceed 100% of the bonus amount.

Y'know, I am not without sympathy for those who are angry that AIG's financial division employees still had a job and got fat "retention" bonuses (even if they'd quit) regardless of their performance at their job.

But the government response here leaves me truly infuriated. These employees didn't do anything but accept what they were offered for legal employment, and this after-the-fact "no, actually, give us back that $1,000,000 bonus or we'll throw you to the mob, plus you have to pay us an additional $280,000 or we'll jail you for tax evasion" is just nauseating. No one who hasn't been convicted of a crime should be subject to fines of 130% of income.

What a mess.

Comments

[elusivetiger.livejournal.com]

Yet another side effect of essentially nationalizing big chunks of the financial industry - government-induced lunacy, responsive to polls, the phase of the moon, and what Obama or some senator ate this morning.

[fortyozspartan.livejournal.com]

Except it isn't really nationalization. It's just sort of like that.

[terrycloth.livejournal.com]

These employees didn't do anything but accept what they were offered for legal employment,

Well, they did do something else -- they bankrupted the country through their negligence, etc. Only losing 130% of one year's bonus is a pretty sweet deal compared to how screwed people usually get for screwing up at their job so badly that people get hurt.

[rowyn]

If they're guilty of negligence, then convict 'em of it.

Doing your job in good faith according to the principles of your legitimate profession isn't usually a crime.

Frankly, nothing I've heard about the current economic disaster persuades me that AIG employees have done any more damage than Rep. Barney Frank's sponsorship and protection of Fannie Mae and Freddie Mac -- and he's still got a job. :6

[terrycloth.livejournal.com]

Well, everything I've heard about it has AIG -- and these employees in particular -- creating a huge powderkeg that still hasn't gone off thanks to the bailout tossing buckets of money onto the sparks that the housing bubble sprayed everywhere when it burst.

So when you hear that the people responsible for the danger are going around and pocketing some of the money that we're trying to use to keep their smoldering mess from killing us all... yeah, you don't have much sympathy if a technicality in the tax system means they might lose a little money (compared to how much they've been paid).

If we *did* have sympathy, we'd write another loophole into the tax system to keep them from getting double-charged. That's what most of the loopholes are there for.

Not to mention that the article implied that they wouldn't even do that -- they can deduct it as a business expense and OH NO it might take them a few years before they've actually broken even.

[verminiusrex.livejournal.com]

What I think many people are forgetting is that you can pass a law and enforce it after, but it is much more difficult to pass a law and enforce it retroactively (I want to say it's even unconstitutional, but unless I can find the part to back me up won't make that claim). So trying to pass laws that punish what we consider very irresponsible use of bailout funds is great for political soapbox shouting, but I have a feeling it won't hold up under court challenges.

Rather than spend millions of dollars trying to punish people that got a bonus, I'd rather spend the time and energy trying to prevent it from happening again in the future. Our government has a bad habit of spending too much time trying to look like they are doing something about a perceived problem rather than doing stuff that actually needs to be done here and now, without a spotlight on them.

[terrycloth.livejournal.com]

Yeah, the retroactiveness is pretty icky, if the 90% and/or 70% thing gets passed. I don't think this would be the first time retroactive laws have gotten through, though.

Obama said he didn't like the targetted tax crap, but I'm not sure that would actually translate into a veto.

[rowyn]

Our government has a bad habit of spending too much time trying to look like they are doing something about a perceived problem rather than doing stuff that actually needs to be done here and now, without a spotlight on them.

Yes, exactly!

I don't think the retroactive taxation is unconstitutional, though. Just unfair.

[shockwave77598.livejournal.com]

Since tax laws passed currently cover what you made last year, it's not a post facto law.

[chipuni.livejournal.com]

No, the government may not pass a law and enforce it retroactively. That's called an "ex post facto" law, and it's explicitly disallowed by the Constitution. (Article One, Section 10, Clause 1: Section 10, Clause 1 No State shall... pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.)

[terrycloth.livejournal.com]

I think that means they couldn't change the law and then immediately arrest them for tax evasion -- but it wouldn't stop them from passing a law that makes them in the future pay taxes on money they earned last year.

At least, I've seen lots of 'clawback' type taxes show up in my tax software, which implies they're constantly doing this whenever they decide that that deduction they let people take wasn't really a good idea after all.

I'm not a supreme court justice, though.

[rowyn]

Yeah, I think the protection against ex post facto laws is mainly against retroactively criminalizing behavior. If an act is legal at the time you commited it, you can't be jailed because a law was later passed against it.

It doesn't really apply to making you pay more taxes for income you earned in the past. No, they can't pass a tax hike today that's retroactive to 2007 and then jail you because you didn't pay enough in 2007. But they can pass a tax hike today that requires you to pay more taxes in 2009 based on what you earned in 2007, and then jail you now if you don't pay the extra tax with your 2009 filing.

The Supreme Court's 1994 ruling in United States vs Carleton generally upheld retroactive taxation: "Provided that the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means, judgments about the wisdom of such legislation remain within the exclusive province of the legislative and executive branches."

One could argue about how rational the proposed legislation is, though. Which hasn't passed the Senate yet, and probably won't since most of the AIG employees gave the money back (although if the WSJ's right, they'd've been better off keeping it and having the retroactive law passed).

[detroitfather.livejournal.com]

I agree with you.

(shakes her head in disbelief)

[tahkhleet.livejournal.com]

Well, the point that trying to punish people by statute instead of formal prosecution is wrong...that holds water I'd say.

Except for one thing.

In this case, we have no hope of seeing justice done. Look at what Obama's doing. Do you get a strong sense that he's a hard hitting reformer? I don't. He hasn't made a SOUND about even going as far as Bush the Elder. You know, that amazingly progressive president who oversaw damage control on the S&L crisis. A crisis that looks a lot like a dress rehearsal for this one... "How much can we get away with ? that much. ok...."

At best, the US has descended into a soft fascism. Obama is no better than Bush. Why else would he insist on upholding the precedents regarding the invincible executive which Bush tried to ram through? The slate legal column said this was absolute nonsense. So Obama has no excuse as a so called populist and progressive but to state that this stuff is wrong and outside any pale of the law.

So I accept the AIG bonus flap is a diversion, like a matador's cape. I accept that it is bad governance to deal with it this way. But given that the US (and by proxy, Canada, since our economy is wedded to yours) has officially gone to Hell in A Handbasket...given I anticipate no basis for it recovering in my lifetime (given the systematic culture of delusion, corruption, and arrogance in common through the business and political elites)...I think I'll enjoy the cape flapping. Its enjoyable. Sure, I'm about to get run through by a sword, but I know nothing I can do is going to change this now. There's too much inertia.

Besides, if my life has to be destroyed, I want to at see at LEAST a year or two's wealth stripped from the triggermen. Sure, it won't fix anything nor is it fair. But at least someone aside from me is going to get hurt. In a better world I would be hoping for more. But it is clearly futile to hope for that. I cannot believe that things actually have slid this far. Welcome to the Revolution of neo-oligarchy.

In case that seems too defeatist...

[tahkhleet.livejournal.com]

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print

Its not the only story because there's just so many bad things happening at once. But this tells a huge part of it. Brad Hicks and Solarbird have relayed lots of data too, none of it good. They're both pretty objective. The most optimistic thing Brad will say is he doesn't think we'll have Mad Max. That would reassure me except that I die if they take away the social support services....so whatever happens to THE world, _my_ world is over in the next year or three.

[fortyozspartan.livejournal.com]

I have a feeling this has more to do with class-warfare than anything else.

[rowyn]

Yeah. That and a kind of "guilty until proven innocent" mentality. AIG was convicted in the court of the press, all of their employees are therefore equally guilty, and accordingly anything that's done to them is just and fair.

...

:(

[jordangreywolf.livejournal.com]

I keep hearing different accounts, and if I talk to different friends, no matter what I last read, I'm wrong: The AIG people being villified ARE responsible for this mess. No, the people being targeted AREN'T responsible, and folks who were hired for the purpose of cleaning up the mess that others made are being villified, targeted, etc.

Whatever. I'm unlikely to get properly informed by reading the news.

However, as a matter of principle, I am concerned by anything that seems like a lynch mob mentality - death threats, demands that each and every one of these "AIG execs" gets named, a lack of clarity about exactly who those AIG execs are, and what they did that's worthy of unleashing the mobs on them. We're mad at "them." I'm not sure that if we got a list of names of "them," that it'd be immediately clear that we've got the right "them." Who's that, anyway? Anybody who works at AIG right now? Only those who work in a certain department? Do we exempt certain people who were hired after a certain point, or are they lynch-worthy, too, because nobody deserves to get paid that much money?

It wasn't too long ago I was reading up on Robespierre's Reign of Terror (remember my "Bayonets, Buttons & Blood" French Revolution figure flats project?) and suddenly it feels contemporary and relevant. (Wow. I heard Madame LaFarge's name invoked in the news, and I actually knew who she was!)

Reading some comments these days on blogs, I might get the impression that we're suffering from another Great Dust Bowl, everybody's hitting the bread lines, people are jumping out of windows, et al., and therefore it's time to get those torches and pitchforks out and go after anybody who's got too big of a salary for our liking.

Anyway, I am glad (but not surprised!) to see that you're one of the level-headed folks NOT hopping on the bandwagon o' outrage.

[rowyn]

Yes! Yes, that's exactly what's bothering me. If the AIG employees did something wrong, they should be sued or prosecuted for it. Having legislation passed to target them for retribution, or having government officials promise to release their names (and refuse to provide any promise of protection) if they don't give back the bonuses, when they'll wind up owing more than they were even given ....

It just really bothers me. It's kind of like the reverse of judicial activism -- the executive and legislative branches trying to do the judicial branch's job. :(

[koogrr.livejournal.com]

It doesn't have to be this way.

I understand, but...

I'm hearing excuses. "We can't do this because it was contracted", "We can't do this because it conflicts with a prior tax law", "We only did what everyone else was doing."

Among one of the many interesting things I got at the ITG training was an explanation of creativity and problem-solving, and that they largely break down into two types: Iterative, and Intuitive.

Iterative changes are small tweaks, additions, adjustments. Altering parameters just enough to make a new item different from the previous ones. Iterative changes work really well in producing a bunch of different designs.

Intuitive changes are throwing out the baby, the bathwater, and nuking the house afterwards just to be sure, creating something radically different.

Governments pretty much universally make iterative changes. An intuitive social change is a revolution, as Jordan has described. While he's seeing similar attitudes in the mob as existed during the French revolution, I'm seeing similar attitudes in the establishment as existed during the Roman Empire, the Byzantine empire, and so on. Namely, our laws and our government are absolute, and if we're going to trip over our own laws solving a problem, we can't use that solution.

Which is fine, except, in a sufficiently broken system, the method of iterative change doesn't work. Insisting it will, making excuses, invites the mob outrage to sweep right through. The outrage is a response to the subtle message that if you're above a certain income, certain class, in certain professions and surround yourself with enough weasel-laws you can get away with anything.

Yeah, it's always been that way, I know you don't like cynicism, but that's where it comes from, when you hear excuse after excuse about why something can't be done because that's just the way it is. I feel this attitude has never been quite so naked. This is why the President of Sudan feels he can act the way he did, this is why there's a drug war in the Mexican towns, and were two shooting rampages two weeks ago. People are picking up that message, and either deciding they're unaccountable or justice will never be done.

That's why. More arguments, more tension, more stress, it directly relates. Some people are jumping out of windows, taking it out on their friends and co-workers. It's not bread-lines yet, but I don't see the reform, I don't see the solution that's going to save us all. This whole AIG thing is a big huge distraction, from that, the revelation there is no plan, no idea, and the experts solving it (Gov, AIG, etc) are the idiots that got us into this in the first place.

It's exactly what I told CDM when I left, that I appreciate they're trying to address the problem, but they can't see it and the things they measure only hint at it.