Changing the Rules for Past Behavior is Bad Policy
The AIG Mess

Doing business is becoming more complicated by the minute. With a shrinking economy and a growing government , the regulations issued by local, state, and federal agencies, and yearly changes to the tax code are enough to jolt business owners awake at night in a cold sweat.

We know that regulations cost small business more than their larger-business counterparts. And, we have accepted that a certain amount of bureaucracy is the cost of doing business. What do not know is how close we are to creating a regulatory framework so complex it will scare people away from taking risks, the key ingredient to entrepreneurship.

The anger over AIG using a taxpayer-funded bailout to pay executive bonuses has prompted the U.S. House of Representatives to pass legislation penalizing behavior by changing the rules after the fact. We are wise to consider restrictions on corporate behavior when those companies are depending on federal help. There are always conditions, expectations, and qualifications when two parties enter into a contract. When a company enters into a contract with the government to receive billions of dollars, it should expect some pretty tough contract terms.

However, companies doing business with the government should not expect for the rules to change retroactively. Not only is that wrong from a simple understanding of contractual responsibilities, it is bad policy.

The worse thing to happen right now as our country is struggling to get out of a recession is for companies to start second guessing their decisions because the government "might change its mind." Expansion plans, hiring plans, and product innovations will come to a grinding halt for fear of unknown consequences.

Last year, the University of Kansas won the NCAA men's basketball championship. What would happen if tomorrow we decided to ban the 3-point shot? And, what if we decided to make the change retroactive to the 2008 NCAA championship? Who would have won the championship? That is ridiculous. However, we are doing the same thing to the business community by accepting a retroactive tax to fix a problem we failed to address when the government agreed to provide AIG with $152 billion last fall.

With regulatory costs exceeding $1.1 trillion, we can not add to the mess by changing rules retroactively. I am glad that the Senate is considering how harmful retroactive rule changes can be to our regulatory structure and to our economy.