Secret torture and hidden bonuses: giving the devil his due

Christopher Kutz

We do not yet know what and when the Treasury Department knew about the now-repaid AIG Financial Products bonuses. But the following is plausible: the traders in that unit had convinced their employer that their skills were so important to minimizing the damage to their company, or would be so dangerous in the hands of their competitors, that they were able to extract compensation at least as valuable as the year before, independent of actual performance or retention. Lawyers then drafted apparently bulletproof guarantees that these bonuses would be paid. Treasury, given legislative cover by Congress, saw the bonuses as a distasteful but necessary cost of minimizing the total losses taxpayers would have to bear. Public outrage at this “business necessity,” however, could scupper the entire bailout plan.

Here is another recent story: intelligence professionals asked to use a range of surveillance and interrogation techniques the law clearly prohibited. They were able to persuade their employers that they needed access to these techniques in order to protect national security. Their employers agreed, and asked lawyers to draft documents that purported to protect the operatives from any legal consequences. Their employers may have agreed because they felt hostage to any future attack, if it might be said that they failed to exhaust all options; or because they genuinely believed that these techniques were necessary to security. When the techniques and the enabling legal documents were leaked to the public, the scandal wrought enormous damage to the reputation of the employer, domestically and abroad. Read the rest of this entry »

Clean up taxes the EZ way

Christopher Kutz

(Originally published in the Los Angeles Times, Feb. 17, 2009.)

The government should devise a simpler system to deal with household employees.

Stories about “nanny tax” problems accompany every presidential transition, with much schadenfreude about the plight of those wealthy enough to pay people to perform their household work.

No doubt some appointees who didn’t pay Social Security taxes for their household employees acted out of bad faith. Some may be genuinely surprised by the low level at which tax liability strikes. California tax liability starts when you pay someone $750 over a three-month period to work in your home, using your equipment and supplies; federal tax liability kicks in slightly higher, at $1,000 a quarter. For a housecleaner paid $150 a week, an employer owes about $1,600 a year to the federal and state government.

But we should not underestimate the number of people who, in good faith, would like to pay their appropriate share of taxes but are confused and frustrated by the obstacles government puts in their way. Given the difficulties, it is hard to believe the government really wants us to pay these taxes. Money is being left on the table. Read the rest of this entry »

Holding executives accountable – profitably!

Christopher Kutz

(originally published in the San Jose Mercury News, Nov. 27, 2008)

There has been much blame for the market meltdown in recent weeks on reckless bankers, brokers, and investors. Demands for reduction in executive pay have stemmed from the huge costs to taxpayers. The poster-child is AIG, which planned to pay out $630 million in managerial compensation, even as it drew on its federally-funded $122 billion credit line. States and the Treasury Department have proposed rules to freeze bonus payments for executives.

The crisis has shown that there is a need for greater regulation. Even Alan Greenspan has acknowledged limits to the market’s ability to self-correct. But there may also be room for a market-based reform – moreover, a reform that cuts more deeply than the Treasury proposal to limit the pay of the three most highly paid executives. Read the rest of this entry »