Unintended Consequences: AIG Bonus Tax Could Have Painful Side Effects

Haste makes waste my grandmother used to say… When it comes to legislation haste often leads to unintended consequences. Take for example congresses rush to pass a 90 percent tax on the retention bonuses paid to executives at AIG (emphasis mine):

Lawmakers bellowed with outrage last week following revelations that AIG was paying millions in bonuses to employees at a rogue division based in suburban Connecticut.

But the bonus restrictions House members prescribed in response — a 90 percent tax on those bonuses — could have painful side effects for the subsidiaries of other bailed-out financial companies, including one located just a few miles away from the troubled AIG unit.

Phibro, a commodities trading company located in Westport, Conn., potentially could be hit with the 90 percent tax on bonuses since its parent company, Citigroup, has received $45 billion in bailout money.

Phibro, though, has not actually taken federal rescue funds and is considered a relatively stable and profitable subsidiary of Citigroup.

The subsidiary side effect is just one example of the complications the House-passed bill could create if such a measure clears the Senate and heads to President Obama’s desk.

U.S. Rep. Jim Himes, D-Conn., who represents the district where Phibro is based, said the bill is “undoubtedly replete with unintended consequences” — the product of what he called “hasty work.”

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But the Connecticut Democrat said he expects the Senate to work up an entirely different bill to address excessive bonuses. He said the House version was a “signal” to taxpayers that Congress is paying attention to the issue, but not a final product.

Excuse me??? With all due respect Congressman, we expect our elected leaders to act like adults. Not to run off half cocked and rush to pass a hastily crafted, unconstitutional Bill of Attainder to send a signal.