Kill AIG Bonuses With a Tax? It’s a Lousy Idea

There is little that boosts the level of a president’s leadership hormone like a politically tough but principled veto.

This is one good reason for President Obama to stop straddling and to threaten to veto any cockamamie tax scheme that emerges from Congress as retribution for the repulsive bonuses handed out at American International Group.

Since the firestorm over the bonuses began burning up the airwaves, Obama has managed to take all sides of the issue. He did it again on CBS’ “60 Minutes” Sunday, saying: “As a general proposition, I think you certainly don’t want to use the tax code to punish people.” On the other hand, in the case of AIG, Obama wants to “see if there are ways of doing this that are both legal, that are constitutional — that uphold our basic principles of fairness, but don’t hamper us from getting the banking system back on track.”

Got that? I didn’t think so.

So many of Obama’s economic advisers sent such mixed signals about the tax-back of bonuses on the Sunday news shows that it’s a wonder screens across America didn’t turn fuzzy. This, as the administration is rolling out (for the second time) its bank rescue plan — which happens to count on the kindness of the same sort of high-roller rascals who like big bonuses — to help remove bad assets from bank balance sheets.

The administration itself midwifed the ugly AIG bonus baby when it demanded a watered-down version of executive pay limits that had started out tougher in the Senate version of the president’s giant stimulus bill. This is the loophole through which the AIG bonuses slithered with ease.

Then the White House line was that contracts were contracts and well, the most powerful man on Earth was utterly powerless to break them. Ah, but then the president sensed that the outrage bandwagon was about to outpace him, so he climbed aboard.

Anyone could have told him that no one can trump the House of Representatives when it comes to getting worked up over controversies of the moment that crackle over talk radio and cable TV. Remember when members were in a lather over the irreparably comatose Terri Schiavo? Or when they impeached President Bill Clinton with salacious glee — and with the full understanding that the Senate was not going to remove him from office?

The Senate is usually a chamber of lesser horrors, though it, too, seems determined to use the tax code to mete out some punishment over the AIG bonuses.

Why should Obama refuse to sign a solution-of-the-minute tax bill?

I don’t necessarily buy the argument that the confiscatory, retroactive tax is unconstitutional. That might be so, but the conservatives making this point most loudly are some of the same great legal scholars who went along without a peep as President Bush shredded the Constitution with his detention and other anti-terrorism policies after 9/11. And besides, which AIG executives — who at the moment fear for their lives — would come forward publicly in lawsuits to challenge the public’s right to get back its own money?

The bonuses were a bad mistake. They are a particularly brutal punch for autoworkers who voluntarily opened up their contract to make pay concessions to carmakers. This was a condition forced upon Detroit by the same Bush administration officials who first negotiated the AIG bailout and knew of its handsome bonus plan.

The trouble is, we don’t — or at least we’re not supposed to — use the tax code to punish industries or people we don’t like, even those that prey on the public. We haven’t taxed the tobacco industry out of existence, though quite a convincing argument could be made for doing so.

Once we start using the tax law to decide which companies and employees we admire and which we don’t, we’re in for a heck of an ideological ride. Would Democrats not love to punish the oil industry? Wouldn’t Republicans, if they held the reins, revel in taxing the pay of union organizers at about 100 percent?

Taxes are meant to raise revenue, and to raise it equitably. Inequity is, in fact, a central complaint Democrats have had about years of conservative tax-cutting for those at the top. But making bad policy to solve a brutal conundrum now only means that someday, someone else will settle the score — by doing just the same.

Marie Cocco’s e-mail address is mariecocco(at)washpost.com.

© 2009, Washington Post Writers Group