The AIG Bonus Tax Makes People Queasy

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Yesterday in the House of Representatives, about half of Republicans joined with Democrats to pass a bill that would tax bonuses from AIG and other bailed-out companies at 90 percent (Charles Rangel, who introduced the bill, said he "figured that the local and state governments would take care of the other 10 percent"). This was clearly an attempt to quell the bloodthirsty rage of their constituents, and hopefully put the whole messy affair behind them and move on to more important matters. And perhaps today Mr. and Mrs. Middle-class Bonus Hater opened their morning paper and smiled, because the government was fighting for them. But why, then, is nearly everyone with a blog or a newspaper column simply more distraught than before?

• The Daily News' editorial board calls it "economic populism run amok." Congress "distorted the tax code into a political weapon as a way to blunt the fury of the American public," potentially producing "dire consequences for the drive to revive America's financial system." [NYDN]

• Paul Krugman says the bill is "clumsy, and it will punish some innocent parties while letting the most guilty off scot-free," but "there wasn’t much alternative at this point. And for that I blame the Obama people." Why? Because the administration has "managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers. And that leaves it with no ability to counter crude populism." [Conscience of a Liberal/NYT]

• Noam Scheiber worries about the consequences we know ("productive, non-nefarious" workers could be affected) and those we can't even foresee. He also claims that "there are third-world juntas that would think twice before doing this." [Stash/New Republic]

• Ezra Klein responds that "we might be a little overly concerned about the feelings of our financiers. If wealthy bankers living amidst a junta had tanked the national economy and thrown millions out of work, I imagine they'd have more to worry about than heavy taxation of their yearly bonuses." [American Prospect]

• Josh Marshall fears the bill cuts too broad a swath. While we shouldn't reward "CEOs who drove their companies into the ground ... it's not clear to me why a couple, both of whom work in the financial services industry, and make $150,000 each should essentially have their entire bonuses taken back in taxes." [TPM]

• Nate Silver, concurring with Marshall, understands "why the bill was written this way — it had to be broad enough to fend off a constitutional challenge — but the cure is worse than the disease. Much worse. I can't imagine a credible defense of it along economic lines, and so far as I've seen nobody has even attempted one." [FiveThirtyEight]

• Michael Gerson wonders, "What sane money manager would want to partner with a government that blames others for its mistakes, urges the violation of inconvenient contracts and threatens to tax benefits retroactively?" We're undermining this essential "trust and confidence." [WP]

• Ian Bremmer and Sean West believe Congress has been motivated by "political expediency" to, among other things, pass a bill that "in other circumstances would clearly be labeled retroactive and unfair." [WSJ]

• Conor Clarke ultimately thinks this "won't really matter a great deal," but even so, "the theory and origins of this bill are questionable." [Atlantic]

• Henry Blodget calls the "Populist Rage Tax" a "new low in the US government's response to this crisis." What's distressing is that many of the people who "had NOTHING to do with the gambling addiction that bankrupted their firms ... will quickly decide that now is a good time to pursue their careers elsewhere." [Clusterstock/Business Insider]

• Michael Lewis agrees that "if the government insists on punishing those valuable employees they will understandably leave, and leave behind a company even less viable than it is, and less likely to give the taxpayer back his money." [Bloomberg]

• Jay Newton Small suspects the bill "will probably cause many of [the affected companies] to simply give back the TARP money sooner than they probably should, to avoid losing their best people to foreign banks, boutique firms or hedge funds that can pay bigger bonuses." [Time]

• Charles Krauthammer contends that "common law is pretty clear about the impermissibility of ex post facto legislation and bills of attainder. They also happen to be specifically prohibited by the Constitution. We're going to overturn that for $165 million?" [WP]