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

[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).