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Friday, March 20, 2009

The instabill imposing a 90% tax on bonuses paid by TARP recipients to people in families with income over $250,000 is getting mixed reviews.

There are two perceived flaws of the bill which cancel out.

1) firms can just raise salaries to replace bonuses. Salaries are not subject to the special tax.

2)it is too broad applying to all TARP recipients including firms that have done fine and took the money as a public service (assuming there really are such firms). Even firms which need TARP help aren't all total disasters like AIP-FP and employ many people who have performed excellently.

Now put 1 and 2 together. Ah yes. Firms which are not controlled by the US government can rename bonuses salary and avoid the tax. AIG can to, but it won't. The argument for paying the AIG-FP bonuses is that there is a contract. That contract won't be replaced by another one designed to dodge the 90% tax.

So, in the end, the tax applies only to people getting bonuses whose employers don't want to pay them that much (certainly including all bonus recipients at AIG-FP).

That's the way to constitutionally write a bill of attainder. Make a general law that appears to hit many people with a loophole that all but the intended victims can use to escape.

Now I think a bill taxing bonuses of employees of firms at least 80% owned by the Treasury would be fine, but looks like Rangel likes to keep his constitutionality clearer than that.

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