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AIG: Malicious Taxation and the Consent of the Governed

Taxation in this the United States has historically had two purposes... revenue generation and social engineering.

Any government that has the authority to compel you to give up part of your life (what is wealth but a manifestation of the time of ones life given up via physical or intellectual labor?) to it through taxation has a responsibility to make sure that it uses both that power and the funds it collects responsibly. Those who are strict constitutionalists (or 'originalists' if you prefer) recognize this authority and its necessity but only for the legitimate purposes of government, which was initially at least intended by be limited by the 10th Amendment:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people

Historically it been held as legitimate when a local government levees a property tax in its area to pay for local services such as police and fire is as such actions are within their jurisdiction and responsibilities, just as it is when the federal government levees a tax for the funding of national defense projects. Both are reasonable and just provided the tax burden is shared and non-discriminatory.

Some might argue that because it is in the best interest of the government to have a healthy population, and that smoking is antithetical to a healthy population, that levying a steep tax on tobacco products would be warranted help encourage people to stop smoking through advertizing and increased costs, as well as help pay for some of the increased medical bills incurred by smokers.

Given the national security implications of our dependence on foreign oil, would not it also be within the authority of the federal government to impose steep increased fuel taxes to help encourage drivers to drive less and to buy more fuel efficient vehicles?

It all sounds so reasonable... only where do we draw the line? More so, at what point does taxation cease to be a method to raise revenue for legitimate (or illegitimate expenditures) or social policies and become a method of punishment?

Some would call the progressive income tax a form of punishment where the more one makes, the more they pay in taxes both in terms of raw dollar amounts and in terms of a percentage of their income in addition to higher brackets not getting the benefits of of certain write offs.

"But they can afford it" some will argue... which while true, is ultimately a specious argument. It's like saying that the tall person in a group should always be forced to reach something on the top shelf or that the short person should always pick up ones dropped keys as both are best suited to the mentioned tasks more than the reverse.

What is the point of all of this?

This yesterday I ran across two interesting stories on both related to the decision by AIG to give ~$165 million in bonuses to some of its executives after receiving a $175 billion bailout/buyout from the American taxpayer. The first involved Senator Charles Grassley (R-IA) saying that the executives should "do one of two things: resign or commit suicide" while the other involved senators who want to tax these bonuses at fairly significant rates.

The first article expresses much of the populist rhetoric and emotion that the administration has been pushing, despite the fact that they, like the previous administration acted in a way that most did not approve of (ie giving huge piles of cash to failing companies).

It is the second article though that is far more disturbing in 3 important ways:

1) In its dealings with banks on behalf of the American taxpayer, the federal government did not establish sufficient controls/expectations/requirements on the conduct of the banks and other institutions who received the TARP funds, even in the case when the federal government now owns 80% of AIG they simply lack the sort of control a private group would have achieved had they paid AIG far less for a smaller percentage. While the Bush administration may have gotten us into this predicament, the Obama administration has done nothing to lessen the impact through increased regulation or the stopping of funding of failed ventures and both houses of congress have continued to run amok by enabling such reckless actions and then having the audacity to complain when it is revealed that they did spend to read the very act that explicitly enabled these bonuses prior to passing said enabling legislation.

The early news through the weekend and early yesterday was the disappointment from the Whitehouse and that they would attempt to prevent these bonuses from being paid... later the news turned to how some planned to prevent further bonuses from being awarded and even take some or all of this money at pretty significant tax rates.

This brings me to the second way that the second article was so disturbing:

2) As codified in Article I, section 9 the US Constitution which says in part:

No bill of attainder or ex post facto Law shall be passed.

Isn't imposing a tax after the fact a case of ex-post-facto and thus... illegal?

While there are a few exceptions to the concept of ex-post-facto, it has generally been held that reducing the punishment/burden of something after the fact (pardon, retro-active tax cuts, repealing of a law) is acceptable and legal, while retroactively causing something to be a crime or increasing a punishment after the fact is generally not.

While it may be legal for the federal government to pass a law declaring that any bonus paid after the passage of said law and from certain kinds of companies would be taxed in such a way, or even not eligible to be handed out, retroactively deciding to tax such a bonus, and to do so at such extreme levels would seem to violate this constitutional principal, furthermore it is miss-targeted.

To punish every executive who received one of these bonuses with a 98 or 100% tax rate for the actions of what is ultimately a far smaller number of executives/stockholders/board members who decided to go through with these bonuses is wholly irresponsible, especially when these very bonuses may have been contractually obligated and known about by the government for months in advance.

It's like taking a birthday gift from someone because you disapprove of the way the giver conducted themselves at some point in their life or business, but when neither party acted in a criminal manner, something that brings me to my third concern:

3) Finally, this would seem to be a case of malicious, or punitive taxation.

Rather than funding legitimate purposes or try to gently steer people away from smoking, fuel inefficient cars, into investing for ones retirement, etc, the act of so forcibly taxing a given behavior into the ground in the hopes of punishing and ultimately destroying it.

This goes hand in hand with calls for so called 'windfall profits tax' that were being proposed to target oil companies who have in recent years made fairly good money due to increased oil demand and high oil prices.

Often missing in these calls is a specific level or definition at which point such an activity is wrong, immoral or should be illegal.

There does exist the argument of the 'spirit of the law'... which is a nice theory only flawed in practice as it leads to the concept of the so called 'living and breathing constitution' which ultimately knows no limits and can be morphed into anything to justify almost any action or policy.

In either case we end up with an interesting case where the government and it's invisible bar sets out to create failure, which reminds me of a line from Atlas Shrugged:

"Did you really think we want those laws observed?" said Dr. Ferris. "We want them to be broken. You'd better get it straight that it's not a bunch of boy scouts you're up against... We're after power and we mean it... There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals one makes them."

At least in the Atlas Shrugged universe the politicians were honest enough to pass laws they knew would be violated, rather than the contemporary method of declaring something as wrong retroactively... ultimately known as a bill of attainder, something that is also prohibited by Article I, Section 9.

It's not unlike the vilification of cigarettes. Many believe they are a detriment to public health through both first and second hand smoke. We ban their being smoked in certain locations, impose significant taxes on them and yet all the while... keep it a largely legal activity rather than declare the whole affair a public nuisance and outlaw it on behalf of all society/the children/etc.

In some respects it makes sense why 'obscene profits', like smoking, drinking and fossil fuels are not banned outright... they make useful political tools, but also create a dangerous division when our leaders create an Emmanuel Goldstein for this week's "Two Minutes Hate." Sure it's nice to be able to attempt to divert attention away from ones owns fault for a time by pointing to the banks, Rush Limbaugh, the former vice-president, the Republican 'cabal'... but in the end it goes only gains the user of this tactic a temporary respite, while potentially endangering their target such as employees of AIG, many of whom did not receive massive bonuses (or likely no bonuses) but have to now deal with death threats.

If we do decide to get on the bandwagon and say that it is ok to target specific politically unpopular groups for high taxes we need to ask why this is ok.

Some would say "oh it's just the rich they are going after"... which is true, this time at least, however a more fundamental question must be answered: since when is singling out any single group and punishing them over (or more than) all others legitimate?

Consider it this way, how do you define rich? Under Clinton the term 'millionaire' had largely come to mean any household making over $500,000... and now the tax policies of President Obama seem to be lowering that number to only around $250,000. How soon until that number reaches $125,000, $75,000, or even $50,000?

In 2008 the median household income in the United States was just $50,233. Does that mean that anyone making over that amount is considered 'rich'? Maybe not now, but for how long will that be the case?

It's basic stick and carrot conditioning, punish behavior you don't want and reward behavior you do… only here it is in reverse. If you punish those making large amounts of money through higher and higher taxes while also rewarding those who do not make as much through various subsidizations and tax credits, you ultimately make it more profitable and desirable to be 'poor' than 'rich'. Eventually you reach a point that the definition of 'rich' has to be lowered more and more as fewer and fewer people are willing to work within the system, possibly due to "Going Galt", through fraud, or otherwise giving up on trying, those making over $50,000 may just find themselves being the next 'rich.'

The very fact that we have to spend any trying to make such definitions should be offensive to all witness to it as unlike many other countries that have or had rigid class structures, the United States practically invented mobility. A man who is rich today can be destitute tomorrow through bad decisions, and someone who is living in poverty can raise themselves not only out of the gutter, but as far and as high as they want.

The very use of these labels by our leaders exhibits not their desire for all to be rich (or content), but their desire to pit one group against another through tax policy for their own purposes.

This is why I am such a proponent of the FairTax, under it there would be no more ability for the government to single out any industry, company, group or individual for increased (or reduced) taxation.

Unfortunately where we find ourselves today is with a government that has the power (though not necessarily the legitimate authority) to declare and single out politically unpopular groups and punish them not for what crimes they've committed, but for being unpopular to those in power.

This nation was founded on the principals of liberty and that:

that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness

...but instead of an Orwellian mantra of "but some animals are more equal than others"... we have degraded to something along the lines of "some men are less equal than others and must act to serve the masses"

Any government that we allow to retain this level of control may say that it stands for freedom and equality... however there is only one logical outcome of this sort of power: unchecked tyranny and while today it may be the rich, the bankers, the executives they target, without their respecting the limits built into the constitution, there is no limit to who may earn their ire.

This is nothing new, to borrow a term from Alexis de Tocqueville and recently made popular by Mark Levin, we have been living in a 'soft tyranny' for many years now, created by those who think that they know how we should live our lives better than we do.

To quote a 1775 letter from John Adams:

Your Description of the Distresses of the worthy Inhabitants of Boston, and the other Sea Port Towns, is enough to melt an Heart of Stone. Our Consolation must be this, my dear, that Cities may be rebuilt, and a People reduced to Poverty, may acquire fresh Property: But a Constitution of Government once changed from Freedom, can never be restored. Liberty once lost is lost forever. When the People once surrender their share in the Legislature, and their Right of defending the Limitations upon the Government, and of resisting every Encroachment upon them, they can never regain it...

Even then it was clear to Adams how this slide works, and it is unfortunate that some 233 years later during an election where "change" was voted for, we may have ended up with the wrong sort which if left unchecked will continue the slide away from something resembling liberty, to something approaching slavery, but not to a plantation owner, business or king... but to government and our fellow citizens.

Here's hoping that it's not to late to reverse course and remind our elected officials that they do not have the unchecked authority to punish those who make them look bad within the law, that they do not have do not have the authority to certain actions a crime, the and that ultimately... their authority only derives from the consent of the governed, a consent which can be withdraw.

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