Senate buries House's AIG bonus tax bill

The U.S. Senate Monday night buried the controversial AIG (AIG) bonus tax bill, reported.

Senate Majority leader Harry Reid, D-Nevada, is likely to delay action on executive compensation until late April, after the Senate returns from a two-week recess.

The Upper Chamber's response came as questions mount about the bill's constitutionality, and after President Obama told CBS's "60 Minutes" Sunday night that he didn't think, as a general proposition, the tax code should be used to punish people.

Political/Economic Analysis: It's time to constructively channel that anger. If the goal is to get the AIG executive/professional bonuses repaid, the Senate and the House should find some other way (moral suasion, negotiated settlement, etc.) to get the money paid back. Even if the Senate passes the bill, and President Obama signs it, it will undoubtedly be tested in court on constitutional grounds, where it will likely be struck down.

For the one-third of the Senate that is up for re-election in 2010, the bill is a nightmare: vote against it, and you're seen as rewarding non-performing AIG professionals with large bonuses; that vote is likely to bear the wrath of the American voter. However, vote for it and you're voting for constitutionally questionable legislation that could hamper the slow, but steady recovery of the U.S. financial system.

Bottom Line: There are better ways than the current AIG bonus tax bill to limit executive pay, both inside investment banking and in other sectors, that are constitutionally sound and can protect the taxpayer's interest and shareholder value and rights, but these are highly complex issues that will take months, if not quarters to resolve. Hopefully, by next month Congress, the Obama administration, and AIG will have negotiated a fair pact that does not offend taxpayers sensibilities but that also enables AIG to do its job.

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