Adjunct Law Prof Blog

Editor: Mitchell H. Rubinstein
New York Law School

Thursday, March 26, 2009

National Law Journal Article Concludes AIG Bonuses Are Legal

The March 25, 2009 National Law Journal has a story about the AIG bonuses which is basically just an interview of attorney Carolyn Plump. Plump basically argues that the bonuses are legally binding contractual obligations and any effort to tax them is punitive.
Plump is of course correct. Additionally, the federal stimulus legislation specifically states that it does not apply to previously written employment contracts. Moreover, any attempt to take away compensation may run afoul of New York Labor Law.
The issue of a  punitive ex post facto tax is a different story. I am less concerned with its ex post facto nature as no crime is involved. I am just not sure whether the IRS is prohibited from punitive taxation. I am also not sure if this is punitive. Rather, it is reflection of betrayal because AIG has been given millions in bailout money.  

Mitchell H. Rubinstein

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Legally, targeting employees' bonuses for one company is very troublesome, even when that company is using taxpayer money. Doesn't Boeing receive taxpayer dollars from the Pentagon and use some of that money to pay executives' bonuses? How is it justifiable to go after AIG alone?

Let this not be a defense of AIG. From a policy perspective, I could sound like a drunken sailor. I have no sympathy for those executives' plight, especially that malcontent who complained in the Times on Wednesday. Without receiving government money, AIG would have had to declare bankruptcy. Under bankruptcy provisions, AIG would be free from some of those contractual obligations. Spare me the nonsense about contract enforcements. Taxpayers did not enter into these contracts with AIG executives. Surely, the Big Three had its own contractual obligations with the UAW, but the UAW always has to give concessions in pensions, health care benefits, and wages.

Hopefully the spotlight, and anger on these issues does not dissipate with an uptick in the market. I forget who said it, but there is more sympathy for 'those who shower before work, then those who shower after work.'

Posted by: Sujan Vasavada | Mar 27, 2009 3:32:57 PM

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