Globe Editorial

Cool it on the bonus blowback

March 24, 2009
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AS GEORGE Washington famously described it to Thomas Jefferson, the Senate is "the saucer into which we pour legislation to cool." Cooling down is exactly what should happen now, as the Senate takes up the hot matter of the American International Group bonuses.

Last week, the House of Representatives voted to impose a 90 percent tax on the bonuses of employees earning more than $250,000 a year at AIG and other firms that took federal bailout money.

The legality of such a tax is debatable. Some law professors argue that a retroactive tax on bonuses could be structured in a way to avoid constitutional problems. But that doesn't change the underlying motivation at work in the House: revenge.

President Obama is rightly wary of following suit. Appearing on "60 Minutes," Sunday, Obama, who has taught constitutional law, stated a key principle when he said: "as a general proposition, you don't want to be passing laws that are just targeting a handful of individuals." And one of Obama's top economic advisors said the president did not want to "govern out of anger."

Besides, while the people's anger at the bonuses may be genuine, lawmaker anger seems more contrived.

Ater all, Congress created the AIG bailout plan, with input from the White House economic team. Either lawmakers knew what was in it when they voted for it, or voted for it without knowing important details. If they are angry at anyone, it should be at themselves, for failing to fulfill their responsibility as fiscal watchdogs.

The same holds true for Obama's economic team.

The AIG contracts, which provide for the bonuses regardless of performance, were written in March 2008. A full year later - after the taxpayers became 80 percent owners in AIG with a $165 billion bailout - the bonuses were protected by a special provision inserted into the stimulus law by Connecticut Senator Christopher Dodd.

Obama's Treasury secretary, Timothy Geithner, said he would take "full responsibility" for the bonus loophole. As it turned out, Treasury staff played a role in negotiating it.

Geithner said he did not learn about the AIG bonuses until March 10. But according to The Wall Street Journal, Geithner's top aides were dealing closely with AIG on compensation issues, including bonuses.

What Geithner knew and when he knew it is still unclear. But by now, the Senate should know that using the tax code as a weapon is a very bad idea.

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