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Monday, March 23, 2009

A.I.G.--Sheesh!

Ken Kerr Bio

Public Enemy

During the Prohibition Era of the 1920s and 1930s—our last great economic crisis, .Alphonse Gabriel "Al" Capone, AKA "Scarface," led a crime syndicate dedicated to smuggling and bootlegging of liquor and other illegal activities. By the end of the 1920s, he got the attention of the FBI after being placed on the Chicago Crime Commission's "Public Enemies" list. Capone thought we couldn't touch him. And while Capone was never successfully prosecuted for his racketeering, bootlegging, prostitution, murder-for-hire charges, his criminal career ended in 1931. He was convicted by the federal government for income-tax evasion.

Today's economic crisis has a new "Public Enemies" list. Although it is not yet populated with names, we know who the public enemies are: the benefactors of $165,000,000 in American International Group (A.I.G.) "retention bonus" money. We are told that these payments were not bonuses, but incentives necessary to "retain" these bright, capable, highly skilled professionals who are the only ones who can resuscitate this dying corporate behemoths from is death gasps.

By now, it has occurred to all who care to think about it that these are the same incompetent fools who engineered this disaster. It was their skills, their capabilities, and their decisions that caused a situation that lead to a $170,000,000,000 bailout of the very company that is now rewarding them for that incompetence.

The Treasury Department and Senator Chris Dodd insisted that the US Government, as 80% owner of A.I.G., was contractually obligated to make these payments. Too bad for UAW workers whose contracts were unilaterally dissolved or altered when that auto industry was in less of a financial crisis and required less government financial assistance. Too bad for them that the US Government is not in a position to decide who is contractually obligated to live up to the terms of their contracts.

On Tuesday, New York Attorney General Cuomo reported that a total of 73 A.I.G. employees were paid more than $1 million in bonuses. The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Another 15 people received bonuses of more than $2 million, and another 51 people received bonuses of $1 million to $2 million.

I compared that to my college professor salary.

The average A.I.G. "retention bonus" payment was $395,000. At my current salary, it would take me 6 years to "earn" what the average A.I.G. incompetent was give as a "bonus."

Fifty-one A.I.G. employees got more than $1 million. That would take me 14 years to earn what showed up in one bonus check. I checked my most recent Social Security statement. I have not made that much money in my entire working life.

For me to earn what the recipient of the biggest bonus, $6.4 million, received. I would have to work at my current salary for 91 years.

Cuomo pointed out that that 11 of those who received retention bonuses of $1 million or more are no longer working at A.I.G.; this includes the big winner who received $4.6 million.

Apparently, the current thinking is that, like Capone, we can't touch these guys.

I propose we use out tax system to get some fairness here. Admittedly, what these A.I.G. bonus-getters did was not criminal—but it was not moral, fair, honest, or proper. The genie is out of the bottle, the ship has sailed, the train has left the station, the horse is out of the barn (and I am out of clichés). Let them keep it. But make them pay for it.

Attorney General Cuomo is soon to have the 71 names. So, too, can the IRS.

I looked it up. Generally, as your income increases, so does your chance of an IRS audit. For example, the odds of an IRS audit for someone in the $25,000 to $100,000 income bracket were less than 1%. For someone making more than $100,000, the odds increase to almost 1.5%

Some relevant IRS audit triggers are:

You have large amounts of itemized deductions on your tax return that exceed IRS targets.

You claim tax shelter investment losses on your tax return.

You have complex investment or business expenses on your tax return.

Your business expenses are large in relation to your income on your tax return.

You have complex tax transactions without explanations on your tax return.

You are a shareholder or partner in an audited partnership or corporation.

You claim large cash contributions to charities in relation to your income on your tax return.

The current Congress idea of taxing these bonuses after-the-fact is probably unconstitutional. It is definitely a bad idea. I don't like the thought of the government decided I broke a non-existent law only to enact one to use it pro prosecute me for something I did that was not illegal when I did it. That's a slippery slope. If the bonuses were legal—let them keep them, but make them pay.

On November 24, 1931, Al Capone was sentenced to 11 years in Federal prison, fined $50,000, charged $7692 for court costs, and an additional $215,000 in back taxes. Public Enemy Capone was released in 1939, after serving seven years and paying his back taxes.

The US Government couldn't convict that public enemy of his primary crimes, but he did eventually pay for his crimes.

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2 comments:

Hawkeye said...

AIG is a corporation. This is how corporations behave. It's not a bad thing, it's just the way our system is.

If people want to be mad, they should be mad at the politicians who left in loopholes that allowed for the bonuses to be given in the first place. You can't expect the people running AIG to start behaving like government bureaucrats; they're going to act like the private insurance giants that they are. It's up to Congress to set the terms of the bailouts they give, and they failed here.

We're not getting that money back. Maybe if people directed all of this anger at the politicians instead of the businessmen who were simply behaving like businessmen do, they wouldn't let this sort of fiasco happen again.

toronto realtor said...

Paying those who didn't do their job properly surely isn't the greatest idea of all times, but why is the press constantly focusing on the bonuses themselves?

The facts are quite clear: AIG contributed to lots of political campaigns. Somebody added a few sentences to the stimulus package bill that ensured these bonuses will be paid even after the company had been given the tax payers money.

Isn't this a bit bigger news? Just thinking "aloud".
Take care,
Julie