On Bailouts and More Bad Laws

Blubs of Verbs, Life Lessons Comments Off on On Bailouts and More Bad Laws

 

“There is no grievance that is a fit object of redress by mob law” – Abraham Lincoln

 

 

Congress is pissed about the AIG bonuses (March 17, 2009), so am I. You should be pissed too, but let us be clear:  The law of unintended consequences states clearly; (paraphrasing) if you use a simple solution to fix a complex problem, you will end up with outcome you clearly didn’t foresee.  

 

As we’ve learned over and over again, anything Congress agrees to immediately is a BAD idea. Legislation that is decided in about a week is written too broadly and loaded with Anti- Constitutional bias, because, really, the constitution is there to help us stop our head long rush to bias.

 

Examples of Quick bad laws with unforeseen consequences:

• USA Patriot Act (eventually led to the Iraq war justification and wire tapping and GITMO)
• The TARP act – Seriously, how much money did we give them (800 Billion) and still had to do it again?
• And now a potential Tax on AIG bonus specifically?  Seems ripe with equal protection bias. 

 

The problem is, the Tax ability of Congress (per the XVI Amendment) is DAMN broad.  On One hand, the argument to kick AIG executives in the teeth feels good, (98% to 100% tax on those people getting bonuses!) sounds awesome, but congress shouldn’t do it. The old definition still works too: A simple system cannot effectively control or predict a complex system. 

 

Note: Now, I understand taxes (I don’t like paying them); I am not stupid. I know that taxes are necessary to run things.  It would be a nasty and silly idea to actually allow a government (especially a capitalist government, that can print its own money) to actually go into full on business to generate funds. It has different rules, makes the laws, and will tend towards monopolistic ideals.   However, I do agree that spinning off LLC’s and 501(c)(3) -not for profit) are good in my book. It also adds some independence to the process. Governments who was in charge of making money don’t like losing money, so things will be glossed over, money will be “switched.” etc, In general, the business cycle isn’t a nice place for a bureaucracy.

 

Yet taxing something at 100 or 98%? For only a few people? Oh that’s just ripe for court challenge. Tacked on laws –because you’re pissed- are bad policy. If the tax was previously there as a condition of taking the money –BEFORE HAND-, well that’s one thing, that supersedes contract, as you’d be entering into a new contract with full knowledge of what you are doing.  In that way, it’s akin to filing Bankruptcy, the genuine contract thumper.

 

Legal Arguments against the AIG bonus Tax: Fall flat, except on purely “you shouldn’t do it” terms.

 

On the Equal Protection side of the fence, you can say, Congress can tax Cigarettes, Alcohol, Gas, Clothing, etc, because I can chose not to buy that thing.  And it applies to any one who buys those things, so they can’t (or shouldn’t) tax me for things imposed upon me, or given to me, (like a bonus). Because the tax is so narrow, and Imposed upon me, it should clearly violate equal protection.

Except there is the gift tax (an imposed tax).  The gift tax Congress treats like “income.” for the person getting it. 

 

*While we are on the subject: This “income” is general already taxed money.  A good tax would be on “Winnings and landfalls.” like Vega or lotto but the inheritance tax is silly. Inheritance is a transfer of wealth, so Congress is basically taxing “my” death.  They are basically saying “We know you possibly couldn’t have paid all the taxes you had, so we’re going to hit you again just to make sure.”

 

Perhaps the law would be construed as TOO narrow, but….

 

As for the second option, snapping the contracts?  Government can’t break the contracts for giving out bonuses with a law that would cause a ripple effect like none other. If a person can’t believe in their contract, then the ink might as well be invisible.

 

One real option is to force AIG to give the money back Now and then when they do fail, to send it thru tried and tested laws, on Bankruptcy filings.

 

Laws should work for the populous, not be used to bludgeon something that really pisses congress off.   And yes, the populous is pissed, but Mob rule is not to be acknowledged, it is a rather nasty thing.  Think about the consequence of passing something immediately.  Who’s ever going to accept money? Who’s ever going to want to be a CEO?  How about a anytime people get pissed the CEO has his money taken away? You know a consequences of that? He no longer looks out for Shareholder Value, he looks out for his own value, and making sure his kids don’t starve.  Why take risks if you will be blamed for it in the future, why innovate you could be wrong.  Punishment is a deterent, but please, never discount –personal- need or greed. People will let a company fail if it means them get to get their money for X dollars in the end.

 

The point:  I say congress should look at the laws they have already on the books. Don’t make more bad law.   The Tax and financial codes are thick with rules. Use them or realize they truly do suck and then make better rules.

 

OceansOfThought @ March 17, 2009