House Tax Chairman Opposes Using Tax Code To Recoup AIG Bonuses

Rep. Charlie Rangel (D-N.Y.) tried to get out in front of a congressional mob on Tuesday. Democrats in both the House and Senate have been calling for the IRS to use the tax code to recoup bonuses paid out to AIG executives with federal bailout money. Rangel, chairman of the House Ways and Means Committee, which writes the tax code, said that the approach was inappropriate.

"It's difficult for me to think of the code as a political weapon," said Rangel, who spoke to a handful of reporters outside his office.

"Is this an indictment or a bill?" asked Rangel. "Are they naming people? I mean, are they naming the taxpayers?"

Rangel said he sympathizes with the effort, but not the means it takes. "There's no way that good thinking Americans should reward people when they've been complicit in wrong doing," he said. "But as a former federal prosecutor, as I recall, it was the criminal code that you dealt with, not internal revenue."

Using the tax code could undermine citizens' faith in it as a fair instrument, according to Rangel. "There is some concern that I have that people will lose credibility in the income tax system and think of it as a political weapon rather than a revenue raiser," he said.

"What bothers me is my colleagues in the House are very angry, as is the administration, with these people at AIG and they want something and they want something now," he said. "This is a venting type of thing."

Despite his reservations, Rangel said he's willing to talk through whatever proposals members of Congress bring to him. "I would hope and assume they have alternatives to using the tax code as a method to either retrieve the federal money or to punish them," he said. "You know, when you get angry you don't think as clearly as you do when you calm down."

UPDATE: Following his conversation with reporters, Rangel met with House Speaker Nancy Pelosi (D-Calif.) and Financial Services Committee Chairman Barney Frank (D-Mass.). On Wednesday morning, said a Rangel aide, he'll meet with members of the committee to discuss a legislative response to the AIG bonuses. He remains open to discussing all options.

Comments

[Denmark2]

The "ex post facto" problem can also be solved by the approach I mentioned. As I said, it all depends on the motivation of Congress to actually grind out the legal details, including the contracts under which it was paid. AIG was dead at the time of TARP $ infusion, so per bankruptcy laws the original employee bonus contracts are null and void.

Another way is to write in a separate excise tax code just for TARP bonuses apart from the regular income tax code. This can be a different filing applicable only to TARPers. Tarp is a special one time (hopefully) Govt. grant, so a different flat tax say 90% can apply. I know it is tempting to go for 100% but that could be considered confiscatory by courts and may have unintended consequences in the future. A sunset clause could also be built into the the TARP excise clause to isolate it from future legal consequences.

[themodernleader]

We have elections that have no meaning. Why? Most of our Representatives are elected for life. The districts are arranged by and for two political parties to make impossible legitimate political contests. I live in one of those districts. Like Charlie Rangel, my representative cruises through our district like a fairytale prince with a troop of sycophants and material trappings who has been knighted by the Queen of England. And he does nothing except to show off and demigogue for ever higher position and power.
We have a failure to provide democracy. The people be used. The people be patient (while power and position go to descendants). The people be servants. The people be damned.

[Denmark2]

Rangel is wrong. Actually the tax code can be used constitutionally without setting a precedence that makes it look like political revenge etc. Congress has already restrictions on TARP money in place, so all the code has to do, is to charge say a 90% rate on the higher end (a rate which has precedence in US history) for all tax payers receving bonuses in every company. Then, in the final tax credit section (line 40, I think) a credit can be provided for non-TARP bonuses, therby allowing people who really earned it, to neutralize the highest rate and pay the standard rate. For TARP folks the credit would be zero (based on a table) and they would pay the 90% rate. For people who got a 1000$ bonus a low rate per the table will apply. In other words, only the fat cat crooks at AIG will be hit. This will pass muster in court because the language is already in the TARP in indirect form. So in a sense, it is an excise tax on a particular one time activity that involved public money. As they get to keep 10% there can be no complaints. They were in effect hired by the public to help the "clean up". Firing can be the next step and the whole thing cannot be called revenge, just a modification of the contract due to Govt. money. Will they do it? I dont know.
Phew, sorry if I over did this...

[BigTom10]

You're right on the money with this solution, only thing that will stop this approach is all of the carreer politicians who have been fattening their campaign chests with donations from these firms. All representatives should be required to list all contributions from the financial industry for the last 20 years. That way we can track conflicts of interest in the job they were elected to do.

[Barbara2423]

Obama and Geithner need to step down. The public does not have time for such stupidity - this is a very serious situation and they are just giving away the taxpayers money with a smile. Remember, Geithner forgot to pay his own taxes and did not receive a penalty. Most Americans cannot get away with not paying taxes plus a penalty.

[Firestarter]

Are you in the real world or just pretending while you are playing with barbies? Why in the f should they step down when they are not the ones who caused this mess. How about Bush, Paulson and Cheney being hauled off in handcuffs! along with AIG's Edward Liddy? Stupid people like you have no clue and need to get one. The began to roll into the hands of these the!ves in 2008, once again who was the president, yeah , i know you are slow..BUSH! The problem with AIG in case you need some help is that its a fore!gn entity has been allowed to operate and consume the American affairs and if they go down yes, the US will sink further, but hey..The greedy WHYTE B0YS love the paper.

[bazokbros]

If the bonuses are taxed at 100% for AIG, then the bonuses that are taxed will be part of the execs income for this year. It would still be possible that when the execs taxes are filed in 2010, the execs could still get a refund from the IRS, but not nearly as much as the bonus amount.

[wordvarc]

AIG is jusy another mob peddling extortion and 'protection.'

The tax code has a history of being used to incarcerate mob figures.

[Firestarter]

You know people the more and more these C0ngre s sCr!tters open their mouths the more imperative it is to get these f ers 0ut of office. It is past time to get r ! d of these door mats and get people who have the c0untry's interest not the f0re!gn interest at heart. A!G is an inter nati0nal company and what happened to the controls of f0re!gn ent!ties owning businesses that are v!tal to the country's own interest. No F0R E!GN COMPANY is not suppose to own any infra structure that can cr!pple a country if they go under. The problem is the f ers got gr eedy. Yes, the WHYTE B0ys are f ing gr eedy. They sold this country to the highest bidder and they have been doing this for decades. The US Government under control of these gr eedy id!0ts have ruined this country hands down. If AIG goes under so will Br it!an..I say let it go under and let the mighty Qu een kiss her f ing a(.s) s. Maybe she can put the castle for sale to st!mulate the economy.

[munki]

Sir, what will be the code used for People's money?

Also, suggest 120% tax rate...

[DRaymond]

It would be even more inappropriate to use the criminal code because the recipients did not commit a crime. Complete incompetence in managing a company is not a crime, nor is recieving a payment called for in your employment contract.

The fact is that both democrats and republicans use the tax code as a tool of social engineering. The number of examples would take up an entire shelf (because that is how big the tax code is). Methinks Rangel has too many bankers in his district and would rather have the dirty work be done by somebody else.

[darthmaul]

Not if fraud was involved, as it appears that it might be. As for Rangle, he's on shaky ground when it comes to the tax code, seeing how he made a few "mistakes" on his vacation properties and it's impact on his taxes. So forgive us Representative Rangle, the average American already has lost faith in the tax code. And as far as AIG and how we deal with the "bonus boys." I'm reminded of a saying of MalcolmX. "By any means necessary."

[AlligatorShuz]

Charlie Rangle, John Conyers are politicians who hav served their usefulness. They don't eve represent their districts. Rangle is a crook.

[Acetracy]

Here is the tax code for Rangel to use: Impose a 90% income tax on all bonuses provided by companies not paying income tax (which includes all the money losing banks, etc that don't pay income tax since they are showing a loss).

Very fair and makes sense: how to you rationalize payng a bonus to employees when the company itself isnt' making a profit.

Simple and fair.

Come on, Rangel. Smell the do the coffee....

[hippie chucker]

Truly, truly delicious irony to ask Rangel to weigh in on tax issues-one of the biggest tax cheats in Congress, who should be in prison right now if Congress had any ethical standards.

[pittsburghunionguy]

Charlie Rangel is an inside-the-beltway political prostitute who long ago ceased to represent his district. How many of the greedy gazillionaires whom Charlie protects from paying their fair share of taxes live in Harlem? Approximately none.

And to think that his is the seat once held by Adam Clayton Powell, a real fighter for working people.

[SurrealPumpkin]

He's right. Much as it hurts, he's right.

[Yurdelite]

Rangel is the wrong person to speak out on this. I think he is protecting state income taxes for New York. Gree.d knows no bounds.