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Good for Congress

Though Michael is correct that the AIG bonuses pale next to the bailout itself, I’m inclined to applaud the House’s proposed 90 percent tax on the bonuses. Crucially, the legislature did not single out AIG: the tax applies to all companies that receive $5 billion or more in rescue money. Those are taxpayer dollars that […]

Though Michael is correct that the AIG bonuses pale next to the bailout itself, I’m inclined to applaud the House’s proposed 90 percent tax on the bonuses. Crucially, the legislature did not single out AIG: the tax applies to all companies that receive $5 billion or more in rescue money. Those are taxpayer dollars that these executives, many of whom are patently incompetent, are being given. The incentives created by the tax are all in the right direction: 1.) don’t continue to reward the bigwigs at AIG, Fannie, Freddie, etc.; 2.) don’t encourage talented people (if there are any) to stay with these zombie companies that already aren’t “viable” –it’s better that talented people go to companies that actually are viable; 3.) send a signal to other decrepit financial institutions that bailouts come with some personal pain (or at least deprivation of pleasure) for the receiver; and 4.) having already decided to pour billions upon billions of taxpayer dollars (or Chinese loans) down the sinkhole, at least refrain from adding insult to injury.

When news of the tax first broke it sounded like Congress was throwing the rule of law to the wind. But that’s not the case: punitive taxation for the recipients of taxpayer largesse neither amounts to a bill of attainder nor affronts the free market. It simply gives these dubious executives a whiff of what would have happened to them if Uncle Sam had not come riding to their rescue.

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