The AIG 90% Tax Rate: Populist Move Has Politcal Dangers

When Jay Leno is asking pointed political questions without a hint of sarcasm in his voice, you know something must truly be amiss, but that is exactly what happened last night on the Tonight Show when Jay hosted President Obama. While the talking heads spent most of today covering the non-issue that was Obama's off the cuff (and unfunny) remark about the "Special Olympics", they largely missed a very real and important political point that was made by Mr. Leno. Jay, in a rather jarring moment of seriousness, questioned whether there were inherent dangers in Congress's 90% tax of AIG bonuses designed to retrieve taxpayer money. Leno pondered whether it was good policy for our leaders in Washington to so specifically isolate and target small groups of people with such specialized forms of one-time only taxes. 

Now don't get me wrong, I won't be shedding any tears for the AIG brass, but if we separate the actions of the insurance giant from the political reality of what Congress did, there are evident dangers. Jay's point was about the dangers of an angry Congress drawing on populist anger to target specific citizens. One can see how this will help around election time. Beyond Jay's fears of a tyrannical-majority Congress, there are even more real threats that this action poses. Who in their right mind would trust a government contract if congress can now simply tax the very money they just paid you at a 90% clip (What an amazing budget balancing tool that is!!!).  The fact is this action has put every government contract in question. It also creates the likelihood that banks will start to throw money back at Washington fearing that any deals they strike with the Fed will be subject to later populist reprisals. In short, Congress did a very stupid thing in order to cover their own asses.

Much to his credit, Obama addressed this with his answer to Jay's query. The key, he said, is to address these issues before the "horse gets out of the barnyard". Reactionary reprisals won't do anybody any good, and Obama realizes this.