A Sound Position: President Obama Questions the Constitutionality of the AIG Bonus Tax

During his interview on 60 Minutes, President Obama questioned the legality of the AIG bonus tax that recently passed in the House of Representatives. Earlier, several members of his administration publicly opposed the measure, which strongly suggested that the President would not endorse it as well.

Although President Obama has strongly voiced his disagreement with Wall Street excess -- including the bonuses -- he has not matched these words with actions. The President declined to include provisions that prohibit bonus payments by TARP participants in the regulations that he and Geithner promoted in February. Furthermore, it has become abundantly clear that the Obama administration pressured Senator Chris Dodd to delete language in his amendment to the stimulus package that prohibits the payment of bonuses by TARP participants, which would have given the measure retroactive application.

Prohibiting Bonuses by TARP Participants
I have argued here and elsewhere that the House tax measure conflicts with fundamental principles of our legal system. The tax singles out a group of individuals and imposes a penalty upon them for already completed activity that was and which remains legal. The bonus tax is also one of the clearest examples of legislation that derives from anger and rage -- rather than calm deliberation. Congressional shenanigans are not the answer to corporate shenanigans.

If the public wants the government to prevent TARP participants from paying bonuses, then that discussion should take place openly. If the President believes that this is not a good idea, he should use his famed communication skills to educate the public -- rather than joining the circus of feigned outrage.

In the corporate sector, bonuses are merely an extension of one's salary; they operate as deferred compensation. Many lay people, however, view them as "perks" or mere handouts. This view probably explains much of the populist fervor.

Legislation Under Fire
The public has every right to demand limits on the use of tax revenue, and it would be perfectly legal to prohibit bonus payments by TARP participants before the actual payments take place. The House measure, however, is a blatant example of opportunistic, emotion-driven, and likely unlawful legislation. It is cut from the same cloth as the dreadful Terri Schiavo statute that shamelessly attempted to undo nearly a decade of litigation in Florida which allowed Schiavo to refuse medical treatment and die with dignity -- a basic constitutional right.

When lawmakers ignore the law and side with the passions of the moment, they often produce unsound and illegal legislation. President Obama has taken the correct position on the legality of the bonus tax. Nevertheless, in an effort to maintain his populist credentials, Obama has done a poor job educating the public about his perspective on bonus payments. Hopefully, he will start discussing that matter soon, so that any legislative response to the subject will rest on solid policy, rather than artificial outrage.