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

[MagicNumbers]

I tend to agree with the Chairman.

[PhilipTaylor]

Why not a 99% tax bracket for all making over the US President's total package as determined by the Government Accounting Office?

For example if the US President's income package is determined to be $1.5 Million then anyone making over that would pay the 99% tax for the excess.

They would pay normal taxes on the first $1.5 Million in taxable income and say they had a taxable income of $4 Million the extra $2.5 Million would be taxed at 99%.

That would stop the ridiculus incomes on Wall Street and in other Corporations! If $1 Million is good enough for Toyota USA CEO then $1.5 Million should be good for all Executives and Managers.

NO NEW LOOPHOLES on this!

[quiviran]

You mean US CEOs should be compensated the same as Japanese Auto Company CEOs? Why that's just…, just… JUST!

[sunshinerain]

Oh yeah! I like it!

[bygollymissmolly]

Sounds fine, but you really can't make it retroactive. How would you like it if they changed the tax codes on "we the people" and then made it retroactive to the prior year?

[sunshinerain]

"We the people" are not raking in billions of dollars through credit derivative swaps. C'mon.

[MiddleRiver]

You are not taking into account that these weasels would not be getting any bonus, or any salary for that matter, if their company went bankrupt. The bankruptcy judge would "retroactively" void their contract.

The US taxpayer stepped in to prevent bankruptcy, not to preserve bonuses for incompetents. Yes, tax the ill-gotten gains of corrupt executives who only still have a job thanks to the taxpayer bailout. For those who work for profitable companies that haven't needed a bailout, compensation should be up to the boards. The specific tax for "bailout" executives can be eliminated when a company fully repays the government.

[NWBrunette]

Of course we can make it retroactive. We make it retroactive all the time. How about the married gay couples in CA who are about to lose the licenses? You think a tax loophole that supported executive compensation never went in retroactive? Hello! We can make it anything we want (as long as its not un-constitutional) and its done all the time.

[bannorhill]

No New Loopholes?

The February Stimulus package specifically allowed bonuses like these for contracts written before February 2009. Maybe if the bill was published more than an hour before the day it was voted on someone could have stopped this.

[oregonbird]

Oh, trust me. We have no faith in the 'fair instrument' of the tax system. You've used audits to conduct a soft torture of dissident Americans for decades -- the IRS is the face of the most unyielding, unreasonable, insane force of the government any of us little ordinary citizens ever come in contact with. It's the Republican part of our government.

Go right ahead and use it on AIG. Use it on the CEOs. It's craven, and the approach has all the balls that Steele displays, and it's not as if we need any more proof of how powerless Geithner is in front of his true allegiance, the corporatations.

But if that's all we've got against a company we OWN -- then use it. We'll just watch you being pathetic.

[Mintcondition]

The people at AIG who are most responsible for the severity of the financial crisis should be in jail. But instead, they're slated to get $450 million in bonuses. Unbelievable, right?

I signed a petition urging Secretary Geithner and Congress to do whatever it takes to cancel these bonuses. Can you join me at the link below?

http://pol.moveon.org/aigbonus/?r_by=15758-9193653-roA_9Rx&rc=confemail

Thanks!

[GeorgeP922]

Thanks for the reminder! I hadn't checked my email in 2 days.

Also folks, join the moveon mailing list if you havent already.

[bygollymissmolly]

The bonuses are not $450 and they have already been paid. They were paid last Friday.

[wrrock]

FALLOUT GROWS: Those who voted for the stimulus, supported the clause to protect the AIGs bonuses. Obama's Own Stimulus Bill Protects the AIG Bonuses He Now Condemns —

http://www.butasforme.com/2009/03/17/obamas-stimulus-bill-explicitly-grants-aig-the-legal-right-to-hand-out-bonuses/

[scooperss]

And the dems start protesting a dem plan.

[SarcastroBO]

Its a delaying tactic. Maybe if we don't do anything immediately people will forget about all this, and the interested parties in Congress can brush it under the rug.

[scooperss]

Of course, it's par the course.
Express outrage, make a big media deal, and then forget about it.
But you know, a lot of people have lost their jobs and have time on their hands to keep track of this.

[gevan]

This Democrat is against using Charlie Rangel for chairman of the Ways and Means Committee. Deal with it.

[dizmo4]

People need to take a step back before proposing any bills or policy changes. Rangel is absolutely right, the tax code should NOT be used as a tool of punishment to go after those that we don't like. Republican already have talking points that proclaim that all taxes are punishment for success. IF the tax system is used as actual punishment it will be that much more difficult to raise taxes on the uber wealthy in the future.

Secondly, not all bonuses or companies are created equal. I agree whole heartedly that the CEOs and CFOs, etc at AIG should be in prison. They should not be paying out bonuses to people that wrecked the company. But thats the case at AIG ( and presumably CITI, BofA, etc).

The rule should be that no bonuses if you need government funds to survive.

[SarcasticFringehead]

Well put dismo4.
These Wall Street putzes deserve jail, but bending the tax rules to use as a tool of revenge isn't legal for one thing and it isn't ethical for another.
We shouldn't ask out representatives to stupidly twist the law just because we are all collectively pissed-off.
Making new rules to prevent bonuses if you accept government funds, as you suggested, is the way-to-go.

[SarcastroBO]

There was no bending of tax rules. Congress would vote on a change in tax law. No laws would be getting bent or broken.

[SarcastroBO]

I'm sorry. My above post should be "There would be no change..."

[Agentprovokatur]

Disagree with your "analysis".

It is a well founded principle of our laws that criminal laws must be clearly drafted and specific. And they cannot be retroactive. What these people did was "wrong" perhaps from a moral or ethical sense, but simply paying bonuses in the manner they propose to do is NOT criminal under the law.

We use taxes ("Sin taxes" on alcohol and tobacco) all the time to deal with "bad behavior". The only qualm I have with the proposal to tax these bonuses, is that in most cases they would be after the fact and "unfair" in that our current tax system is known and knowable and people can plan for it, whereas these taxes violate that principle (which frankly, should not be controlling and is not prohibited - like retroactive criminal laws - by the U.S. Constitution).

As for it becoming a "Republican Talking Point". That argument is frankly, dead on arrival. The Republicans will be screaming about taxes no matter what is done until all taxes and the Federal Government is abolished. So cede that ground to them and get over it.

[sunshinerain]

It's not "punishment" against people we "don't like." It's CLAWING BACK MONEY THEY SHOULDN'T HAVE GOTTEN IN THE FIRST PLACE, WHEN THEY ARE BAILED OUT BY THE US TAXPAYER!!!!!!!!!

[bygollymissmolly]

I agree. And that is something that Bush/Paulson should have written into the contract they made with AIG when they GAVE them TARP money. Unfortunately they GAVE them the money with no strings attached.

Now people are blaming it on Obama and expecting him to fix another problem that Bush created.

The fact that the AIG people took those bonuses is outrageous. But it isn't something that Obama/Geithner caused. If they are going to get the money back, it's going to have to be in a legal manner. I don't want to see President Obama ignoring laws he doesn't particularly like as we had happen with our former President.

[ModeratePoliticalJunkie]

Rangel is a hack who has lost ALL credibility and needs to retire ASAP.

[bygollymissmolly]

Based on what? Your opinion? Well, your opinion means squat to anyone but yourself.

[cityprof]

I see nothing wrong with putting a tax on all bonuses across the board as long as it treats everyone the same. Every bonus over 100,000 should be taxed at 50% and then graduated up to 100 % appropriately. Rangel is right in that it should not be political and not just targeted at AIG. Then it's fair. The taxation system has long been used to ferret out bad or unfair economic policies. By the way, is using the tax code to go after gangs and their members not the same thing?

[sunshinerain]

Seriously - I saw a rap video about a bank robbery the day last fall when all this wall street meltdown started - I thought wow, those rappers sure know how to make up-to-the-minute social commentary! About Wall Street!

But no - the video really WAS about a bank robbery by a gang...but still - it's like wow, that's WALL STREET ALL THE WAY!!!

Good for the gang, good for the trader, the broker, the hedge fund manager.

THE WALL STREET GANG

[GeorgeP922]

Rangel seriously?

Folks, we got to have term limits, someone needs to boot this crook from our caucus.

He realizes he has ZERO credibility, I hope Nancy hits him with a newspaper.

[DoTheMath]

I'm confused. I looked back at the articles on AIG, and they all say the U.S. government "took over" AIG or "seized control" of AIG. If the federal government now controls AIG, why can't the federal government control AIG's bonuses? If the answer is that the bonuses were guaranteed by contracts that predate the take-over, I'm having trouble understanding how that would work, in general. When companies buy out other companies, are the buyers required to uphold all the obligations of the previous owners? Isn't there some kind of mechanism for negotiating new conditions, given the fact that the company was in such bad shape it needed to be taken over to survive?

If we, as the new owners, can't legally withhold the bonuses, can we require bonus recipients to return the money to the government or buy government bonds as a condition for continued employment at AIG?

[Eyeswideopen1]

apparently you did not 'dothemath'

[Agentprovokatur]

Taking control of an entity does not abrogate its existing contracts. You now own an entity that still has agreements with the other parties - to which it is subject. In fact, some contracts provide for additional payments (one form of Golden Parachute) that become payable upon a change in control (usually with the kicker that the person is terminated within a certain period, sometimes even if they Quit). In a nutshell, changing a company's owners does not change its' legal obligations (other than to possibly INCREASE them due to change-in-control payments). The only way to "negotiate new conditions" is 1) voluntarily (why would these people give up the money?) or 2) actually take it into bankruptcy and try to use the bankruptcy laws to modify the contracts - but that would have lots of other effects and be like using a Nuke where a grenade might be warranted.

I can partially understand Rangel's "philosophical" concerns about the Tax Code as a "political weapon" but frankly, a special tax aimed specifically at these types of bonuses, is probably the most sound and quickest manner of stopping them from a legal perspective. Anything else will likely involve lawsuits (as even such a tax might).

[DoTheMath]

Thanks. That's helpful.

[bygollymissmolly]

Because we own 80% of AIG but have no voting rights. That was the deal that Bush/Paulson worked out with them. With no voting rights there really isn't anything that the government can do other than to take them over completely. Which is what I think we should do if they need any further money to survive.

[DoTheMath]

Thank you. I agree.

[Lemmy]

If there's anyone that knows the tax code, it's Charlie! How's his investigation coming along? Another pol that doesn't pay taxes.

[SarcastroBO]

Rangel in a week: Don't do anything.

[Liberal2]

Rangel is probably right. But he should begin a thorough investigation of Wall Street.

[SarcastroBO]

If we are going to investigate Wall Street, all that money should be held until the investigation is complete. We wouldn't want these people to become little Madoff's and hide as much of their ill-gotten loot as possible.

[000Jade000]

Well, some are saying, "let the crooks go to court and sue AIG for their bonuses," but others are saying that a court case would cost taxpayers too much.

There HAS to be a way to get the money back!

[bygollymissmolly]

How will they sue AIG when they already have the money. These bonuses were paid last Friday. The only alternative now is to find a way to get the money back. And that's going to be tough considering the fact that Bush/Paulson GAVE AIG TARP money with no strings attached.