Takashi Kuribayashi, Director of Chiba University of Commerce Research Center for Economics

"I have instructed the Secretary of the Treasury to use every means possible to stop this," President Obama said in a statement from the White House, and his answer was to forcefully withdraw public funds by imposing a 90% surcharge on large bonuses.

It all started with the worldwide recession that started in the United States last fall. The subprime mortgage problem triggered an unprecedented credit crunch after Lehman Brothers went bankrupt, and AIG, the world's largest insurance group, also fell into a management crisis. AIG hedged the risks of major banks, and if AIG went bankrupt, the financial system would collapse, so the US government had no choice but to inject huge amounts of public funds. However, AIG's executives took the public funds injection based on the management crisis seriously, worked to maintain discipline, and made diligent management efforts. Although they should have had their pay reduced, they instead received exorbitant bonuses of 165 million dollars (16.1 billion yen), which makes it ridiculous. Public funds are, of course, the people's hard-earned tax money. If you think about it simply, it's like paying their bonuses with tax money, and even if it wasn't against the law, it's morally unacceptable, and it rubbed people the wrong way, leading to the presidential statement at the beginning. What is common sense on Wall Street is nonsense in the general public. The public criticism was much harsher than expected, and some executives felt unsafe, with a considerable number of them voluntarily returning their bonuses.

On March 19, the House of Representatives passed a bill to impose a 90% tax on such large bonuses. This proposed tax increase, backed by public anger, is likely a relief to many Americans.

In theory, targeting certain people's bonuses with heavy taxes is an outrageous act that cannot be tolerated from the standpoint of fiscal science, which emphasizes fairness in taxation, and the constitutional legitimacy of government intervention in the legal private sector is being called into question. However, financial institutions have strongly opposed the move despite public opinion, and many have voluntarily returned their bonuses, so the issue is beginning to calm down. President Obama will likely be asked to make careful decisions going forward.

This problem is deep-rooted. A capitalist economy is a mixed economy of the government and private sectors. The idea that the government should not intervene in the private sector, as represented by Adam Smith's hand of God, and the idea that the government should actively intervene during recessions, as suggested by Keynes, are a double-edged sword. To summarize the problems, the first is that derivative transactions, the poster child of financial engineering, have been left unchecked under the slogan of the Big Bang. Certain regulations should have been established to maintain order in the financial system. The second is the inadequacy of legal provisions at the time of emergency public fund injections. Since the people's hard-earned tax money is being poured into the economy, the government sector should have had the power to enforce its use, due to the function of finance. The third is that it significantly undermines the fairness of taxation. The punitive heavy imposition of bonuses distorts the efficiency of taxation and contains problems that could ultimately shake the very foundations of fiscal democracy itself.

It is unclear how the Senate will proceed, and the repercussions could be huge.