Recently there has been an outrage by the public and by Congress because of the fact that insurance giant AIG was handing out huge bonuses after receiving money from the stimulus bill. A law was proposed and passed by the House of Representatives last Thursday that would tax the bonuses given to AIG employees by 90 percent as an attempt to recover the money paid out.
The idea by Congress to tax AIG employees at such a high rate is unconstitutional. Article I, Section III of the US Constitution clearly sates that “No bill of attainder or ex post facto Law shall be passed”. Taxing AIG bonuses falls into this category.
A bill of attainder is a law that punishes or fines a specific individual or group. By singling out AIG employees who received bonuses Congress is targeting a specific group, and they are fining them in the form of taxes.
Broadening this idea to involve all companies who took stimulus money, it does not make sense for Congress to tax bonuses from those employees. The first problem that arises is the fact that the stimulus bill has already been passed, and legislators cannot continue to make rules and stipulations after the stimulus bill has already been passed.
A company may accept stimulus money based on the conditions outlined in the original bill, but may disagree with a provision that is added later. As an example, AIG may not have accepted stimulus money in the first place if they knew that bonuses were going to be taxed or rescinded. But thanks to Sen. Christopher Dodd, contracts that employees had with their employers (including bonuses) were guaranteed to stay intact because of an amendment added into the stimulus bill before it was signed into law.
Now Congress is deciding after the fact that bonuses are not acceptable. Changing rules as time goes on like this will deter companies who are severely in need to stimulus money from accepting it in the future. Companies will not risk taking money from the government when they fear that the government may add on additional rules and policy initiatives after they have already accepted money. By that point, companies who accept stimulus money will already be at the mercy of the government.
Another problem with the government taxing bonuses on companies that received bailout money is that we are deterring the brightest minds from joining or remaining at companies who need the best help that they can get right now. The most brilliant and intelligent businessmen will not enter companies in which they know there is no possibility of gaining bonuses. They will expend their energies at companies where there is a greater potential for them to earn money.
We originally gave aid to companies because we believed that they were so significant to our nation’s economy that we could not afford for them to fail. If this is the case, then we need to make sure that we continue to recruit and give incentives for the most talented workers to join these companies.
Actions taken by the government such as taxing bonuses at enormous rates will not ensure that these struggling companies will thrive in the future.