This week’s big economic news is focused on what to do about the bonuses paid by AIG to its employees. Many are outraged at the thought that AIG would even think of paying these bonuses in light of the bailout money they received from the government. After all, the money they received belongs to the taxpayers of this country. The pitchforks are out and people are even issuing death threats to the executives at AIG. Congress is urging AIG not to pay the bonuses and is even threatening the employees who receive these bonuses with taxes. Some have even suggested taxing the bonuses at 100 percent. However, before taking such drastic measures, I suggest putting the pitchforks away and taking time to think logically about what we are doing. It is then that commonsense can take over once again.
Emotional reactions to problems rarely, if ever, result in lasting solutions and often result in unforeseen circumstances, which actually exacerbate the problem, making it worse. Let us take a few moments to look at some of the unforeseen circumstances that would be the result of the drastic measures being proposed in the AIG situation.
The bonuses AIG is paying are the result of contractual agreements entered into by the company prior to receiving any bailout money. The stimulus package was rushed through congress and members of the Congress, the Senate, and even the President did not have time to read the bill. The bill gave no specific guidelines to the companies receiving the money, so they were free to spend the money as they saw fit. The bill also told the recipients of the money that they were still obligated to honor their previous contractual agreements. If AIG were to decide not to pay the bonuses, they would be in breach of their contractual agreements with their employees. This opens up the company to legal action from the employees. AIG would most likely lose the case and end up paying the bonuses anyway along with punitive damages, legal costs, and court costs. In other words, the taxpayers would end up not only paying the bailout money but also the additional costs of legal action.
However, the pitchforks are still out demanding that the recipients of the bonus money be taxed returning the money to the taxpayers. This all sounds good but even if the government were to issue checks to each taxpayer for the money returned, and I doubt they would issue such checks, it would only amount to a few dollars for each taxpayer. However, a decision by the government to tax these bonus recipients is a dangerous slippery slope we do not want to go down.
At present the greatest source of tax revenue to the government is the income tax. Our income tax is progressive in nature meaning that the more an individual earns, the higher the percentage of their income that is taxed. However, the progressive nature of this tax does not take into consideration how the money is earned or from whom it is earned. By deciding to tax bonuses from AIG we will have opened the door for government officials to tax individuals based upon whom they work and the job they do. This is a slippery slope that could affect any one of us based on what we do to earn income.
Becoming emotional and angry does nothing to improve our personal financial position and only leads to rash and often harmful decisions. I recommend that each one of us calm down and take the time to evaluate our own personal financial condition. It is easy to become emotional when we have all seen our wealth decline in recent months. However, that does not mean we have to continue going broke. Perhaps we need to take on a second job to earn additional income we can use to reduce our debt or put away for our retirement. Perhaps now is the time to act upon that business idea you have been contemplating. Perhaps you need more education. Whatever our need is now is the time to determine what we need to improve our own position and begin taking action.
As for the pitchforks, I recommend putting them back in the tool shed. In fact, they look a little rusty so before using them we might want to clean them up a little. Instead, use the tools of knowledge, wisdom, and commonsense in order to come up with a solution that will actually work and produce results. Results that will be tailor made to our own economic situation.
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