AIG employees - Why you should donate your bonuses instead of returning it

by Xin Lu on 25 March 2009 19 comments
Photo: AIG-USA

Lately many top AIG employees who were targeted by Congress in the $165 million "Bonusgate" incident have returned their bonuses.  Some people are still holding out, and in my opinion, they would be better off if they simply donated their bonuses instead of returning it to AIG.  Here is an open letter to these employees and others who may be targeted and threatened with confiscatory taxes.

Dear targeted bonus-receiving employees,

If I were in your shoes, I would be furious at the congress critters who have no idea what merit pay means.  After all, they have the power to vote for their own pay raises even though their approval rating were in the single digits. Right now you are simply a tool for some political smoke and mirrors to distract the citizens from the trillions of dollars the government is throwing around carelessly.  I think many of you know that already, and it sucks to be the scapegoat.

Many of you already promised to give your bonuses back, but why would you return the money to an institution that we all know is failing? If you do not need the money, I think it would be much better to give the money to a local food bank, homeless shelter, or whatever charity you support.  Many of these private nonprofit organizations are much more efficient than the government in helping those in need. Right now many charities are in need because less people are donating, and the millions you have will definitely help.

If you do donate your bonus, the government cannot tax it 90% because the money is gone.   I also highly doubt that they will go after a charity for the money because that would just be plain tacky. You would actually get significant tax deductions  for the money you donate and in a way say "screw you" to those who are trying to single you out for their own political gain.

If any of you do decide to donate your bonus and it is a significant amount, I suggest making a ruckus about it and tell the media.  This way you will get some good PR.  Seriously, why give the money back to a financial black hole when you could get your name on a building and help the homeless?

Sincerely,

Xin Lu
 

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Catherine Shaffer's picture

Great idea, Xin!

Catherine Shaffer

Wise Bread Contributor 

Guest's picture

I just love reading your articles. Keep up the good work!

Xin Lu's picture
Xin Lu

I was actually thinking of writing this a while ago.  Anyway, it seems that at least one bonus recipient is donating everything:  http://www.nytimes.com/2009/03/25/opinion/25desantis.html

 

Guest's picture
Kelja

Xin Lu,

Excellent idea! Why didn't I think of it!

Thumb their noses at those attach dogs in Congress. (As if they had a leg to stand on.)

Guest's picture
Daniel

Why should AIG employees get performance bonuses when the company is failing? Why should we reward the people who threw AIG into a tailspin in the firstplace?

Guest's picture
jdbauer6

Daniel, think about this for a moment. Do you think that ALL the people who received bonuses at AIG were involved in the company's negative performance? What about the IT director who dramatically exceeded performance? What about the person running facilities who dramatically decreased expenses?

This over-generalization and misunderstanding of how compensation works is frankly dangerous and misguided.

Why would all the remaining good people want to work for a company that is being torn apart when they can go somewhere else? Shall we just let them go without paying them, let the company completely fail and lose our $160B investment in it? The amount of these bonuses is chump-change to the wasteful billions that congress has spent in the last month alone. Who should we really be mad at? I wonder why congress is making such a stink about this? Possibly to distract from their mismanagement and reckless spending?

Philip Brewer's picture

Good advice, except I'm not sure this is true:

If you do donate your bonus, the government cannot tax it 90% because the money is gone.

If you owe taxes, it doesn't matter if the money is gone--the IRS can still come after you for it.  It does that all the time--and will take whatever money you happen to have lying around.

In this particular case, it will matter a great deal just how the law that eventually gets passed is written.  It could well be that donating your entire bonus would reduce your taxible income by that much, but not reduce the special 90% tax that you owe.  If you'd donated the money you'd just have to scrape together the 90% out of savings (or ask the charity to give 90% of it back).

At this point, I expect the smart move would just to be to do what the open-letter guy did:  Pledge to donating the after-tax sum, once you know for sure what the taxes will be.  One extra bonus: it'll get the philanthropic community on your side.

Xin Lu's picture
Xin Lu

yes, you are right that the deductibility of the donations depends on  how the new tax law will be written.  If it works like the current tax system, it would mean that these people can donate up to 50% of their adjusted gross income and since their tax rate is 90% they wouldn't have to pay 90% taxes on the part they donate.    However, if the 90% tax is just a brand new surcharge that's not tax deductible, then some of them already have to pay over 100% of the bonus due to state taxes.  So the bottom line is that there is really no point in trying to keep the money. 

Guest's picture

Nice Argument Xin.

If it were my money I would be donating it to charity.

-Nate

Julie Rains's picture

I wonder if some charities will refuse the money.

Guest's picture

These guys have some nerve-- they should all be drawn and quartered . . .

As for the charities, these guys should never have gotten the money in the first place!

Guest's picture
Vlatro

"I have ever deemed it more honorable and more profitable, too, to set a good example than to follow a bad one."
-- Thomas Jefferson

Guest's picture
Guest

Should be a Dem Donkey up there with all the AIG ties to Dodd, Obama and such. Not that the Elephant shouldn't be there either (McCain etc. AIG cash).

Guest's picture
Vlatro

People seem to be missing the bigger issue. The tax code is now being used to punish people without giving them the benefit of a fair trial. The bonuses may be considered by some as unethical, I'm not going to waste time debating that. Has the law, as it is currently written, been broken? I don't see indictments, trials or convictions. We just skipped the whole process and went straight to punishment. There are AIG employees receiving death threats and having their homes swarmed by angry protesters. Many of them were not the recipients of any bonuses. A Federally funded organization (i.e. supported by YOUR tax money) is providing tour buses to these people's homes, doing every thing it can to throw more fuel into this fire. Not to mention that it was CONGRESS who authorized these bonuses, as a provision of the bail-out funds for the company.

Where is the public outrage against congress? Why aren't their homes being stormed by angry mobs? We didn't vote for any AIG members, but the elected officials who continue to be the beneficiaries of your tax money have betrayed to you. If you're against the bonuses, they have played an equal part in robbing you. We're throwing away the constitution to squelch an emotional need to act, even when the full facts aren't available to the public.

The Constitution is NOT a series of laws the government came up with to govern us. Rather it is the restrictions WE as citizens have put on that government to ensure our freedom. It is the line they can not cross. A line that is being pushed further and further back at our expense. We as a people have the right and the responsibility to assemble and speak out against a government who crosses that line. That right exists in writing because of the implied responsibility. We have the right to bear arms, as we are expected to take up those arms against such injustice and remove any power that threatens our freedoms.

The current government is dividing us. Republican vs Democrat. Liberal vs Conservative. Rich vs Working class. Sides are chosen and we're pitted against each other. Then they throw us some little shred of controversy and lets us squabble over it while they continue to seize power, safely hidden by the meaningless distractions they've created. AIG is done, these executives, be they right or wrong, pose no further threat to us. And still the angry mob gathers outside their homes. Congress will ensure there's always another scandal and they'll spend billions of dollars of your money to distract us. Anything they can do to keep the torches and pitchforks off of their own lawns, the threatening letters out of their mail, anything to avoid accountability for their actions.

Without freedom, there is no prosparity, economic or otherwise. We're losing our country because people are so easily lead into the fits of outrage. They'll piss away 230 years of hard work that went into building the country, just so they can feel better seeing one group punished. Are you a Republican or a Democrat? Union member no non-union? Upper-class income, middle-class, or welfare or disability recipient? Are you fresh out of college looking to enter the workforce, or are you trying to keep the job you've had for 25+ years? What is your race? Religion? Odds are YOU are a part of at least a dozen groups that someone lobbying Washington has a problem with. This time it was executives, but sooner or later the focus will change. We're all the target eventually. Maybe some are deserving targets, others may not be. But when your time comes, right or wrong is rarely a factor. What's important is the conduct of those who point their finger at you. Will you be able to demand legal representation, or will an angry mob just arrive on your doorstep? If we continue to set such a dangerous precedent and allow this conduct now, it's only a matter of time until it's used against you group.

I would spend the money to mail out millions of copies of the US constitution. The government will make their end on the deal in the form of postage, and a few people might actually wake up and realize what's happening here.

Guest's picture
sassiebrat

rule 1 of problem solving: correctly define the problem. your last paragraph hints at the real problem... it's the sheep. go ahead and waste your money mailing out the constitution. the sheep follow the path of least resistance. they resist change which includes learning something or voting idiots out of office. they may live in s***, but it's warm s***.

Guest's picture
Graham

You really hit it on the nose.

Please come to http://freedom-forum.com and make an account, or just poke around

We could really use some highly conscious people like you

Really, with words and a brain like that, you'd be doing the country, its people, its future and yourself a disservice

Guest's picture
AnnJo

It is astonishing that people who were up in arms during the Bush administration about our supposed loss of civil liberties are cheering Obama on in the fastest, most extreme deterioration of our liberties we've seen since Franklin Roosevelt's wartime excesses.

As we prepare to release Guantanamo terrorists into our population so that they can enjoy our coming publicly controlled "universal" health care, Obama proposes to incarcerate and set up indoctrination camps for ALL American young people in his new mandatory "national service" army. Those who absorb the correct thoughts will no doubt be kept on in government funded political organizing posts, to teach the rest of us how to be proper 'global citizens' and make our proper, Obama-defined 'shared sacrifices for the common good.'

And the people who were appalled by Guantanamo have absolutely no problem with this much greater and less justified intrusion on personal freedom.

People who were appalled that the federal government might listen in on their phone calls to terrorists seem to have no problem with Obama requiring that ALL our medical records be an open book to that same federal government.

At least when Bush was eroding our civil liberties, he was trying to stop more 9/11 events. Obama's justification is - what? Oh, I forgot, he doesn't need one, because hardly anybody is willing to ask him for one, and if they do, he'll just stop calling on them at his press conferences. Once the Democratic Congress starts funding and controlling major newspapers as "non-profits," his propaganda will be the only thing most people will get to read.

Guest's picture
sassiebrat

p.s. the sheep is the american public. no on can divide someone else. the sheep divide themselves along lines of interest. there are many subdivisions within divisions. and both of these two posts, or most of them, are in reply to viatro and annjo (maybe others, i haven't read everyone' posts).

Guest's picture
Guest

AIG is a huge multi-line company. Not all parts of AIG lost money. What about the worker that landed a new million dollar account? Should they have to give back their bonus? They made money for the company. This issue is not the black & white picture congress would like you to think it is. Today it is AIG's bonuses that congress is going after. Tomorrow it may be your income that is deemed to be excessive and taxed.