Is it Legal to Tax AIG Bonus Money at 90%?

Discussion in 'Politics & Law' started by Mirage, Mar 20, 2009.

  1. Mirage

    Mirage Administrator Staff Member V.I.P.

    First and foremost, I don't condone the huge bonuses this dying company gave all of its executives. I want to make that clear. I think it showed a lack of ethics.

    BUT, as far as I know there was absolutely nothing in the loan contract that AIG signed when they got their bailout money that told them what they could do with it.

    Now their bonuses are being taxed at 90%?

    So the US government can just decide to tax specific people 90% as a punishment for running their company how they see fit? Whether or not the bonuses were justified is out of the question. I think the 90% tax is completely illegal and I wouldn't be surprised if these executives take this to the supreme court.

    If I worked there I'd quit anyway. I wouldn't want to work at a company where the government critiqued my every move and just issued tax punishments if the company made a bad decision. If the government doesn't like how AIG is running itself then maybe they should have included something that says the company has to reorganize and hire new staff in order to get the bailout money.

    This is like giving money to a homeless person and then getting mad when he buys beer.

  2. Kazmarov

    Kazmarov For a Free Scotland

    But taxation is implemented at a separate time period. They knew what 165 million in bonuses was going to entail as a response. Congress shot themselves in the foot by not doing this at the time of the loan, but adjusting taxation is a legal compensation for their error.

    The government owns 80% of the company, why the hell not? Again, I think they shot themselves in the foot by not nationalizing AIG, but it's their company, with their money. The only thing that's not them is the executive, and why do they get to do whatever the hell they want?

    Bad analogy. It's like giving money to your child and getting mad when they buy beer- the relationship that exists allows for leverage without any doing anything illegal. You can punish your kid because you have a stake in them on a legal level, the same goes for government-owned businesses.
  3. Swiftstrike

    Swiftstrike Registered Member

    The government is the shareholder.

    They are free to tax the bonuses as they see fit...
  4. Mirage

    Mirage Administrator Staff Member V.I.P.

    Actually it was a loan. They don't actually own even a single % of the company as far as I know. That gives them zero right to change the contract after the fact.

    One of the first things you will learn in business school is to always make sure you are happy with any contracts before you sign them. Legally I think all of those AIG execs have a case against the Federal government for wrongful taxation and punishment without a trial.
  5. Stab-o-Matic5000

    Stab-o-Matic5000 Cutting Edge in Murder

    Apparently AIG does too, since they're now apparently suing the government over it.

    I frankly don't know where to stand on this. I think something should be done about the huge bonuses that AIG is paying out, but at the same time I really don't like the idea of Congress being able to punish people out of revenge like this. It sets a precedent that I don't really like.
  6. Mirage

    Mirage Administrator Staff Member V.I.P.

    Well that's my thing too. I even put a disclaimer in the first line of the OP stating that I don't think it was right for AIG to pay out these huge bonuses BUT that isn't the question I'm asking either. I think most people would agree that it was a bum move.

    Even Jay Leno asked Obama about this precedent during his interview last night and he didn't really directly answer it. I think the contracts in the future should be written so that things like this don't happen with bailout money, BUT, going back and fixing past errors? Maybe this will teach them to actually read these things before pushing them through. :-/
  7. Tucker

    Tucker Lion Rampant

    It's not a mere loan per se. The government owns 'equity participant warrants' for 79.9 percent of AIG's equity, meaning that government has the option and right to own 79.9 percent of AIG's stock shares. Whether or not the option will be exercised remains to be seen.

    They don't have a case yet, as the tax is only a proposal at this time. The bonus recipients can choose, if and when the time comes, to try to retain that money via the courts... or they can just give us taxpayers our money back now.
    Last edited: Mar 21, 2009
  8. Stab-o-Matic5000

    Stab-o-Matic5000 Cutting Edge in Murder

    I definitely agree that it should have been written into the original legislation. Congress dropped the ball there.

    On the other hand though, what kind of person needs a 10 million dollar bonus to not quit a company? That is the argument that AIG is using, after all, if they don't give out those bonuses they say that their top brass will leave.

    Still, I really don't like how Congress has been acting lately. I realize they're just reacting to public outrage, but the idea of passing legislation out of revenge does not sit well with me at all.
  9. Merc

    Merc Certified Shitlord V.I.P. Lifetime

    This is mainly why I was against these bailouts in the first place. Greed won't disappear in the face of desperation. Just because these guys were about to bomb doesn't mean they're going to start spending their money properly all of a sudden. If the government was stupid enough to loan these guys billions of dollars then part of me thinks that this 90% tax is the government throwing a hissy fit for making a serious mistake. I understand the whole "saving the economy" business but isn't that kind of unnatural? Shouldn't these ineffective and corrupt businesses be allowed to fail? If you allow success, you must allow failure, it's that simple.

    Giving these companies money just proved that they're not worried about the United States, their worried about their wallets and making things better for themselves. The government should learn it's lesson and quit with this bullshit "everyone gets a handout because you fail at business" theory.
  10. Swiftstrike

    Swiftstrike Registered Member

    Well debt holders Hybrix, have priority over shareholders.


    They are definitely within their rights since debt holders have corporate priority over any owner with the distribution of assets.

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