Last Thursday night, a question that Jay Leno asked President Obama caught my attention. The substance of that same question made the weekend talk shows and now the Monday papers: What's preventing Congress from passing more legislation that imposes sky-high taxes on specific segments of our population, as it did when the House voted to impose a 90 percent tax on AIG executives who kept their bonuses? "It seems a little scary to me as a taxpayer that they can just decide that," said Leno.
Jay Leno was on to something. Singling out groups of taxpayers is scary. When Leno asked Obama about it, the president didn't have much of an answer. But since Thursday night, the president's team has apparently thought about it: Anger from members of Congress directed at banking leaders could derail the administration's toxic assets plan being unveiled today. And so over the weekend, the White House tried to put the kibosh on the targeted tax that passed the House. The administration hasn't said yet that it'll veto the measure if it passes the Senate, but I bet that's under consideration.
Look at it from a businessperson's point of view: Will the brave folks who invest in toxic assets in partnership with taxpayers suddenly find themselves the subject of congressional outrage? What's preventing an investor who uses taxpayer money as part of his purchase of toxic assets from getting grilled by angry members of Congress, like Ed Liddy was, when they don't like what he's done with the taxpayers' money? Or from having to pay a 90 percent tax when he pays his employees under their contracts? For that matter, will he suddenly find himself having to fire his non-American workers (say, the guys in the London or Toyko office) because American taxpayer money was used to pay foreigners? Where will it stop?
Those are rational questions for bankers to ask. And the administration is worried that the bankers will say "thanks, but no thanks" when it comes time to bid on toxic assets alongside taxpayers, as Secretary Geithner is proposing today.
On Sunday morning, Jared Bernstein, the vice president's top economic adviser, told ABC's This Week: "I think the president would be concerned that this bill may have some problems in going too far—the House bill may go too far in terms of some—some legal issues, constitutional validity, using the tax code to surgically punish a small group.... That may be a dangerous way to go."
Austan Goolsbee of the Council of Economic Advisors went on CBS's Face the Nation to let businesses know that what happened to AIG this week won't happen to them: "What we saw this week and what we have seen in our discussions with people is that if you lay out clear rules that are responsible, people want to participate if there's a business reason to participate. In this circumstance where we're trying to encourage the private sector to participate, that's going to be treated totally differently than companies like AIG or Fannie Mae where they are only in business because the government saved them."
"The public outrage over the AIG bonuses has undermined support for Treasury Secretary Geithner at a pivotal moment," the Washington Post reported this morning, without mentioning that the White House had a big hand in whipping up that outrage. That's all behind us now, I suppose. Last night on 60 Minutes, the president said he would not govern out of anger. Let's hope the business leaders don't fail to act out of fear and anger, either. We all need the toxic assets plan to succeed.
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