Daily Archives: March 22, 2009

Take a Breather America

minute-man-2-lithoAmerica is caught up in a self-perpetuating hysteria over the retention bonuses paid out to executives at AIG after it received some $170 billion in bailout money.  Politicians eager to distract us from government’s involvement in our economic woes point to corporate greed as the culprit, using the bonuses as exhibit “A”.  The story is dutifully hyped by the mass media and the lemming like followers of the media becomes incensed, demanding that something be done.  In turn, Washington politicians elbow their way to the cameras, each trying to outdo the other in assuring the voters that they are going to get even with those greedy capitalists on their behalf.

It’s time we all take a deep breath and a closer look at what is really going on.  Keep in mind; these were retention bonuses, not performance bonuses.  Companies finding themselves in serious financial circumstances will often offer key executives retention bonuses to discourage them from abandoning the company prematurely, assuring its ultimate demise.  It’s kind of like a NFL team quarterback, after a thirteen and three season, announcing plans for retirement.  The team may offer him a huge bonus in order to keep him on for another season.  If the next year turns out to be a three and thirteen season, no one then demands he return the bonus.

That’s partly because we do not consider it our money although it is paid with money the team ultimately got from the fans.  Our fearless leaders in Washington remind us daily that the bonus money paid to AIG executives is taxpayer money.  That is not entirely correct.  At one time, it was the taxpayer’s money, before it was confiscated by the IRS.  Once you send your check to Washington, it becomes the government’s money.  Proof of that is the fact that after the government has possession of it, the taxpayers have little or nothing to say about how it is spent.  Should the government be successful in getting the entire $165 million dollars back, do you really think they are going to send you a check for $110?  That is approximately the share that would be due each taxpayer, if each made an equal payment toward payment of the bonuses.

As a part of the pols pitch to the voters, we are told the executives who got the bonuses are the same ones that wrecked the company to begin with.  However, ask the same politician what the names of the executives are, or exactly what job they performed and they cannot tell you.  The reason is that they have not been publicly identified, and after the furor stirred up by our politicians, their names should not be made public for security and safety reasons.  The truth is that neither you, I, nor anyone in Washington knows who received a bonus or whether the decision to pay them was a good or bad business decision.  After the fact, it seems not to have been a good one, but the fact is that the only ones who know for sure are the people who made the decision in the first place.

Undaunted by the facts or the Constitution, The house passed a bill on Thursday levying a 90% tax on bonuses paid by companies receiving more than $5 billion in bailout money to executives earning more than $250,000 before the bonus payment.  Charlie Rangel assured us that state and local taxes will get the remaining ten percent. (In California the tax will be 101%)  Before we start cheering, we should consider that if Congress can reach back and confiscate the prior earning of one group, they could do the same thing with any group, including us.

Those who oppose the “Bonus Confiscation Bill” use the Constitution as their argument against it.  Article I, Section 9 says, “No bill of attainder or ex post facto law shall be passed”.  Many Constitutional scholars however point out that this section of the Constitution applies only to criminal laws passed after the fact that would hold someone criminally liable for acts committed before they were declared illegal.  Courts historically have taken this view.  Regardless of whether the new tax is unconstitutional, it is certainly un-American.  It violates the sense of fairness by changing the rules after the play has been made.

The “bill of attainder” and “ex post facto” section of the Constitution was debated at the Philadelphia Convention on August 22, 1787.  The notes taken by James Madison provide us with some interesting insights as to the thinking of the Framers.

“Mr. Gerry & Mr. McHenry moved to insert after the 2d. sect.  Art: 7, the Clause following, to wit, “The Legislature shall pass no bill of attainder nor any ex post facto law…”

“Mr. Elseworth contended that there was no lawyer, no civilian who would not say that ex post facto laws were void of themselves. It can not then be necessary to prohibit them…”

“Mr. Wilson was against inserting any thing in the Constitution as to ex post facto laws. It will bring reflexions on the Constitution — and proclaim that we are ignorant of the first principles of Legislation, or are constituting a Government which will be so…”

“Doc. Johnson thought the clause unnecessary, and implying an improper suspicion of the National Legislature…”

The clause carried, seven ayes to three nays.  To me, the most interesting comments were those made by Mr. Elseworth, Mr. Wilson, and Dr. Johnson.  The language here implies that Elseworth, Wilson and Johnson considered it almost an insult to suggest such a clause because it implied an “ignorance of the first principles of legislation, or are constituting a government which will be so.”  Dr. Johnson also felt it would imply a suspicion of the National Legislature.

We can assume that the three Nay votes, although not recorded by name, were from these three gentlemen. Their objection was not to the idea itself but to the absurdity of thinking any legislator would even consider passing an ex post facto law.

A more cogent argument against the bill is found in Article I, Section 10 which forbids the states to, …“pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts…”  The inviolability of our contract laws provides the underpinning for our entire economic system.  If we allow Congress to pass a law “impairing the obligation of contracts”, there is no limit to the ability of Congress to intervene in our business affairs.

It may not be time yet to break out the pitchforks and march on Washington, but the time is certainly drawing closer.