Thursday, March 19: H.R. 1586 – 90% Tax on Certain Corporate Bonuses

The legislation imposes a 90% tax for bonuses received by an employee of a company that has received Troubled Assets Relief Program (TARP) funds in excess of $5 billion, as well as employees of Fannie Mae and Freddie Mac.  The tax would be retroactive to December 31, 2008 and apply to income in excess of $250,000 (or $125,000 in the case of a married individual filing separately).


Two Wrongs Don’t Make a Right. Without the bailouts, the taxpayers would never have been put in the position of their dollars being doled out for executive bonuses.  But since the bonuses have been distributed, the solution is not to compound the problem with more inappropriate actions by the federal government.

Bill of Attainder. The bill, while not mentioning AIG by name, is clearly meant to punish AIG executives who received large bonuses—a specific group of individuals in response to public outrage over the bonuses.  Given this motivation, many believe that the legislation is a bill of attainder, and thus prohibited by Article I, Section 9, Clause 3 of the Constitution.

Confiscatory Tax Rate. The legislation creates a tax rate of 90%.  The income tax has not had a top marginal tax rate of that level since the Kennedy Administration.  This legislation will set a precedent to apply confiscatory tax rates to other individuals in the future.


Published in: on March 19, 2009 at 6:43 pm  Comments (13)  

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  1. This is a slippery slope and it’s the reason to be wary of setting certain precedents. This gives the government too much power and control and I’m not quite sure this is constitutional based on contractual law or the fact that the bonuses were allowed on several occassions such as the NY Fed architecture of the original TARP or the $1T stimulus… This is not good at all. But thank you so much Michele for staying principled and upholding the constitution and thinking about the Forgotten Man.

  2. My spouse & I removed the “R” from our voter registrations a while ago. The 85 RHINOS who voted “Yea” on this outrageous and unconstitutional bonus tax confirm that was the correct decision. The country needs term limits and vibrant conservative & libertarian parties.

  3. This is insanity! We work so hard for the compensation we receive. Many employees of JP Morgan Chase are compensated with bonuses instead of salary so if times are hard, there can be a cut back instead of a large salary commitment. It is a floating salary and it benefits the shareholders. Now, because of Dodd’s inability to get the wording correct…because nobody read the legislation they signed…innocent people have to suffer. Where are we supposed to come up with $50,000 to pay the 90% tax? We paid bills with that money and funded charities. The nation has gone crazy! Who is going to get it right? It is beginning to feel like Cuba when Castro came and took over! Come on!!!!

  4. Article 1 Section 9 of the Constitution is clear! This is illegal. The evil RHINOS who voted against the majority are the only people in our Government right now that are voting with the counrty in mind.
    Let us not forget that the majority just voted to give away all these billions with no strings attached and you have the gall to be angry at the AIG execs for getting paid.
    No Bill of Attainer or ex post facto Law shall be passed.
    Wake up! Your Government is now making it up as they go.

  5. House passes bill taxing AIG and other bonuses
    By STEPHEN OHLEMACHER, Associated Press Writer

    I can understand the publics’ outrage at these bonuses when I read the inaccuracies throughout the media.

    It really aggravates me how so many writers are grossly overstating the numbers for this bailout. Your writer states, “AIG has received $182.5 billion in federal bailout money…”. The facts are clear. If you simply watch the testimony of Mr. Liddy on Wed. AIG has received $40 billion from TARP (“federal bailout”) and another $37.8 billion in the form of a loan from the New York Federal Reserve Bank. Even if you count the loan as “federal bailout money”, which I would argue is NOT because The Federal Reserve Bank of New York is a private bank like any other, AIG has only received and is liable for $77.8 billion. Congress does not allocate, regulate, or in any way create money. In 1913 we gave that power to a private bank. The $40 billion is in fact “taxpayer” money presumably from the taxes that have been or will be collected. But, the other 37.8 billion is NOT taxpayer money. It is dollars that have been deposited in THE FEDERAL RESERVE BANK (the bank) by the sale of Treasury Bonds or the bank simply decided to print more dollars. People have NO idea what money is. They just know that they can exchange it for something they want. The general public doesn’t understand that dollars are simply paper instruments to transfer a debt to The Federal Reserve Bank. They are no different than writing a check or tendering a money order. It’s a way to say I don’t owe you anymore, this person does. And, the federal reserve does not have enough assets to satisfy that debt if it were to ever be requested to do so. They owe more value to the holders of dollars than their assets are worth. Sound like AIG and almost every other bank? If people were to ever realize how large this “Ponzi Scheme” has become it would cause a great and immediate inflation and eventually a collapse of The Federal Reserve Bank and the Dollar. This is beginning to happen as the world is losing faith in our ability to repay on the treasury bonds.

    I believe that there is either a deliberate attempt to mislead the public or a gross level of incompetence on the part of the media and the Congress. No one is explaining to the public that the retention bonuses were POST paid for services rendered. In late 2007 AIG executives realized that the book of business, the CDOs and other risky investments, in the Financial Group, were tremendously risky and needed to be liquidated. They told the employees that their jobs would be eliminated once these assets were sold. These employees were very qualified to liquidate these assets and if they were to quit immediately, AIG may not be able to find replacements quickly enough to manage the assets. When I say manage, I mean sell them, liquidate, get them off the books as soon as possible. These “retention contracts” simply said, if you stick around long enough to sell these assets AND you do it in a “satisfactory” manner we will give you a bonus at the end for your efforts. We will reward you for NOT quitting and getting the job done! They brought the CDOs from $80 billion down to $10 billion. They did exactly what they were asked to do. And, now the American people want AIG to renege on this agreement. It was so obvious during the hearings that even the congressmen asking the questions did NOT understand this. This is evidenced by the fact that they kept mulling over the issue of employees “leaving only 2 days after the bonuses were paid”. They were under the impression, as most of the public is, that these “retention bonuses” were to keep people in the future. These bonuses could be compared to AP deciding to close a division within 6 months and asking their “qualified” employees of that division to stick it out and wrap up loose ends so that the division did not simply collapse overnight from lack of resources. People have a tendency to quit and have no loyalty to a company when the company is eliminating their job.

    This is it in a nut shell. Mr. Liddy made the right decision from a business point of view. The company owed the employees for services rendered. And had he NOT issued the payment by March 15th, the payment date on the contract, he would have exposed the company to a liability two (2) times the $165 Million. This is common in all states for breach of contract. In my state, Texas, the law allows for treble (3x) damages. And, it’s appalling that our congress which obviously did not understand the bonuses in the first place are now attempting to TAX 100% of this money. People better wake up and think about the consequences of allowing our congress to TAX 100% of anything! THIS IS COMMUNISM!

    This doesn’t even address the issue of this bill being unconstitutional. Article 1 Section 8 clearly states, “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States”.

    Since all income taxes are “excises” they must be uniform throughout the United States. I would argue that an excise tax specifically targeting bonuses paid by certain and qualified companies is NOT “uniform”.

  6. […] to the floor taxing AIG bonuses to the floor? Why did the unconstitutional legislation pass by the embarrassingly large margin of […]

  7. […] to the floor taxing AIG bonuses to the floor? Why did the unconstitutional legislation pass by the embarrassingly large margin of […]

  8. who are you people….. LETS GET BACK TO BASICS…. If a company loses money then there should be no bonus…. how hard is that to understand. Just like all the small business owners in the country, if they lose too much money they go out of business. retention bonus — ha – where the hell are they going to go. this is sad–so very sad that you are trying to defend the bonus.

    • The bonus is really not the issue to me its the fact that the TAX was retroactive. Retroactive laws are illegal according to the constitution. I do think its wrong to have given a bonus but passing a law after the fact to punish them is even worse and illegal.
      No Bill of Attainder or ex post facto Law shall be passed.

  9. I’m certainly no legal scholar, but it seems to me that this bill is even more onerous than the press and our government has led us to believe.

    Correct me if I’m wrong here, but it seems that if you work for a company that received >%5 billion in TARP funds, then you get taxed at a marginal 90 percent rate on each dollar of AGI over $250k…EVEN IF YOU DIDN’T RECEIVE A BONUS!

    That is to say, anybody making over $250k is taxed at 90 percent for each dollar they make exceeding $250k…which is not really that much in a two-income household.

    This is absolutely ridiculous.

    Not to mention that it’s clearly unconstitutional.

    Where do the idiots in Congress get off on this?

    I’m telling you, I’m running for Congress. Vote for Bill.

    My campaign slogan:

    “I suck less than my opponent.”

  10. H.R. 1586 is a farce!! Imagine, if you will, Congress refereeing the NCAA playoffs, with input from the Administration. You wouldn’t dare to bet on your favorite because, depending upon who was playing, the rules could be changed mid-game. Or worse yet, if the referee didn’t agree with who was ahead in the last quarter, he/she would change the rules, retroactively. Winners and losers would be chosen by Congress, as they chose to apply, change, ignore the rules. The referee would decide what was “fair”–not based upon the rules in place, but the rules the referee wants to impose, perhaps led the the enthusiasm of the crowd for one of the teams. How would you coach a team when the rules were fluid? Would you encourage any players to go pro? Going pro could be the “road to riches” or the “road to ruin” if Congress decided that particular basketball players didn’t deserve the $$ they were awarded and confiscated them through punitive taxation.
    That’s what it feels like for business prospects looking forward. When the rules can be changed arbitrarily and capriciously, with minimal consideration for the unintended consequences, business will pull in the reins. Hire more employees? Not if the cost of employees is going up by government decree. Expand? Why take a chance when states are all over the map considering what else they can tax. It is impossible to project revenues, costs, profits or taxes in this environment.
    If you wanted to kill the NCAA Playoffs, you would give the referee responsibility to Congress. If Congress and the Administration want to kill the recovery, they need just continue on the path of mindless, capricious rule changing and punitive taxation they have started down. It is a guaranteed result. Perhaps, is that what they intend? I wonder……..

  11. Below is from HR 1586 as it was sent to the Senate. Notice the word “lesser”:

    IN GENERAL- The term ‘TARP bonus’ means, with respect to any individual for any taxable year, the lesser of–
    (A) the aggregate disqualified bonus payments received from covered TARP recipients during such taxable year, or
    (B) the excess of–
    (i) the adjusted gross income of the taxpayer for such taxable year, over
    (ii) $250,000 ($125,000 in the case of a married individual filing a separate return).

    This is your typical backwards IRS speak, but it is not quite as bad as what Bill said in his post. The language about $250,000 does not expand the excise, but rather limits it. They only look at the portion of a bonus that drives your AGI over $250k.

    Example 1: Your household AGI is $260k, including a $30k bonus. Option A is $30k. Option B says “The excess of the AGI… over $250,000” which for you is $10k. Option B is the lesser of the two, so your “TARP Bonus” is $10k.

    Example 2: Your household AGI is $750k, including a $100k bonus. Option A is $100k; Option B is $500k. Option A is the lesser of the two, so your “TARP bonus” is $100k.

    Example 3: Your household AGI is $200k, including a $15k bonus. Option A is $15k; Option B is zero. Option B is the lesser of the two, so your “TARP bonus” is zero.

    I actually think that’s close to fair. Don’t get me wrong — that would hurt if you already threw your whole bonus into a retirement fun or gave it to your church. But I agree with the basic message: don’t saddle my grandchildren with debt, by funneling TARP money into big bonuses. So, high earners at covered TARP recipients are getting an embarrassing haircut — it’s no fun but it’ll grow back.

    On the other hand, I agree with Don about retention bonuses. If the point of the payout is to thank a manager for mopping up the blood of his decimated team, before closing the door behind him — well that’s really a severance payment that that employee deserves. I would like to see the Senate provide a better definition of “disqualified bonus payment.”

  12. Congresswoman Michele Bachman makes me puke. She writes, “Given this motivation, many believe that the legislation is a bill of attainder, and thus prohibited by Article I, Section 9, Clause 3 of the Constitution.” What the hell’s up with ‘many believe’? Take a friggin stand Ms. Spinless Congresswoman.

    And why are most of these comments are claiming, “it’s unconstitutional”. Hey morons, the federal constitution says, ‘all debts must be gold or silver’. Our fiat paper is an unconstitutional monatery system but do you write your Congressman /woman? No you don’t. Does spinless Congresswoman Bachman bring up this topic? Of course not. She’s a coward.

    The federal Constitution says Congress MUST declare War before we go to war. Did Congress DECLARE WAR and let Bush go into Iraq? Of course not.

    Where in the hell is in the federal Constitution does it say Congress can take money from the treasury and give to AIG, GM, EGYPT, ISREL, etc., etc.? Cuz the power isn’t in the Constitution. Do you or this Bachman give a rat’s ass? Of course you don’t.

    Lastly, as someone who’s has taken the time to read the Internal Revenue Code I know I have the Right (of which I excerise) to work in the private sector w/o a Soc Sec #. LEGALLY. No loopholes. It’s the law. And my ‘labor’ is not taxed by boss. Never has been.

    If you believe Congress has the power to tax your labor while you work in the private sector, then Congress has the power to tax it ALL or just at 35%.

    There are 5 taxes listed in Title 26 of the Internal Revenue (Code). Subtitle A is Income Tax. Subtitle C is Employment Tax. Income tax IS NOT employment tax.

    So why do you people bitch and complain about the federal Constitution when Congress (including the Bachman woman) and you people have ignored it for decades?

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