House passes AIG tax bill. What now?

It passed 328-93, with mostly Republic opposition. And the Republic opposition seems to have been motivated less by any principled objection to the bill than by a vaguely jealous sense that the Democrats shouldn't get credit for spanking AIG: The AP says: "Minority Leader John Boehner, R-Ohio, said the bill was 'a political circus' diverting attention from why the administration hadn't done more to block the bonuses before they were paid." But the circus certainly preceded this bill, and I'm sure it will tumble on for some time.

So where does it go from here? A few theories:

1. The strongly cynical view is that this bill will have disastrous consequences for every company that has received a government bailout, and any company that might consider taking a government bailout in the future. If you buy the arguments that labor markets in these industries are still competitive, then it will make it harder for companies that accept large amount of bailout funds to attract and retain employees. This will result in poorer performance by companies that the government de facto owns: it will be propping up increasingly vitiated and labor-starved institutions.

2. The mildly cynical view is that the bill won't really matter a great deal. If you restrict compensation for companies that accept $5 billion or more in TARP funds, then you will increase the number of companies who accept $4.9 billion bailouts. If you restrict bonus compensation for employees with incomes in excess of $250,000, then you will decrease the amount of "bonus" compensation and increase the amount of "salary" compensation. This is roughly analogous to the position that water runs downhill.

3. The mildly optimistic view is that the mildly cynical view is correct, but that's okay: the bill succeeds in satisfying populist ire with little negative impact and makes the government look effective. Evil corporations are chastened; Congress rides off on a white horse. Maidens swoon; children toss flowers.

4. The strongly optimistic view is that the compensation in question was preposterously inflated to begin with and will now shoot down to a more more rational level. This is a net gain for the companies, who were hamstrung by crazy compensation arrangements even if they didn't know it. It is also a victory for fairness and common sense. Maidens swoon; cherubic children toss flowers.

I think I'm a mild cynic.

But that's judging the bill solely by its immediate consequences. I still think, as I wrote in the last post (and in too many others), that the theory and origins of this bill are questionable, for four reasons: (1) The law is being pushed through quickly and we haven't had time to think about the unintended consequences; (2) It is retroactive, and we should want to discourage laws that are retroactive; (3) it targets an extremely small portion of the population, and we should discourage laws that are not general in application; and (4) it is, at least in part, motivated by a punitive impulse that isn't necessarily the best thing for our politics.