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Is Taxing AIG Legal?

James Joyner
18

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Conor Clarke agrees with me that taxing AIG bonuses amounts to an unconstitutional bill of attainder (although I think non-criminal legislation doesn’t technically qualify).   Clarke takes the additional step of interviewing Laurence Tribe, one of the country’s foremost legal minds, on the subject and gets the preliminary answer that, “It would not be terribly difficult to structure a tax, even one that approached a rate of 100%, levied on some or all of the bonuses already handed out (or to be handed out in the future) by AIG and other recipients of federal bailout funds so that the tax would survive bill of attainder clause challenge.”   There’s more at the link, including a PDF’d note from Tim Lee.

As I noted on last night’s OTB Radio, the Supreme Court has frequently neutered provisions of the Constitution through ridiculously narrow interpretation.  The Self-Incrimination and Double Jeopardy Clauses are classic examples but there are many others.  That doesn’t make it morally right or in accordance with the views of the Framers, of course, but it satisfies Justice Brennan’s Rule of 5 (the Constitution means whatever a majority of the Supreme Court says it means).

With respect to the AIG bonuses, however, a much more pragmatic issue exists: Most of those receiving said bonuses are citizens of the UK who live and work in the UK.  How the United States Congress proposes to tax them is anyone’s guess.

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18 responses to “Is Taxing AIG Legal?”

  1. Bernard Finel Avatar
    Bernard Finel

    My understanding… and I’ll try to track down specific cases on this… is that there have been several cases of retroactive closing of loopholes in tax laws that allowed the government to claw back funds.

  2. James Joyner Avatar
    James Joyner

    I think that’s right. This is more problematic, in that the bonuses were paid, legitimately so far as I can determine, under contractual obligations signed well before the bailouts.

  3. Bernard Finel Avatar
    Bernard Finel

    Here is the case I was thinking of: New Tax Law Takes Aim at Estee Lauder

  4. Steve Verdon Avatar
    Steve Verdon

    Well, maybe we can do away with the nonsense oath of office thing now. We can just have the Chief Justice of the SCOTUS ask, “Do you promise to do whatever will increase your popularity?”

    “Yes.”

    “Great, you are now president.”

  5. PD Shaw Avatar
    PD Shaw

    Prof. Tribe is describing a perfect law that perhaps he might be able to write in a vacuum, but I believe there is very little chance in surviving the political process.

    For one thing, the court decision Connor links to states that one of the issues is whether the legislative record “evinces a congressional intent to punish.” Now, yesterday, the congressional record did so evince, this morning, the Reps cleaned up their language in response to some behind the scenes drilling.

  6. charles austin Avatar
    charles austin

    Ah, the living constitution. The gift that keeps on giving.

  7. PD Shaw Avatar
    PD Shaw

    James, the question for bills of attainder is not whether it is criminal or not, its whether the law is intended to punish. Part of the problem with a law that is intended to punish an individual or group is that it bypasses the protections afforded in the criminal process.

    Retroactively is a separate issue. Retroactivity in a criminal setting violates the Ex Post Facto clause. Period. In non-criminal settings, the Courts review the issues as one of fairness under the due process clause.

  8. Drew Avatar
    Drew

    We can just have the Chief Justice of the SCOTUS ask, “Do you promise to do whatever will increase your popularity?”

    LOL

    Amen, bro.

  9. Drew Avatar
    Drew

    “Most of those receiving said bonuses are citizens of the UK who live and work in the UK. How the United States Congress proposes to tax them is anyone’s guess.”

    Sovereignty? Sovereignty? We don’t need no stinking sovereignty…..

  10. Barry Avatar
    Barry

    “With respect to the AIG bonuses, however, a much more pragmatic issue exists: Most of those receiving said bonuses are citizens of the UK who live and work in the UK. How the United States Congress proposes to tax them is anyone’s guess.”

    Well, what right-winger could complain if these guys got a Hellfire missile through their bedroom window?

    Actually, the hook would be that these people might be subject to prosecution upon entering the USA.

    In the end, though, I don’t support such a special tax bill; I support extensive criminal prosecutions.

  11. Billy Avatar
    Billy

    It’s clear that no one complaining about these bonuses has any idea what a “retention bonus” is, let alone a bill of attainder.

    I look forward to the legal gymnastics required to justify this in constitutional terms. I only hope Law Professor Obama is genuine enough to veto this bill as the unconstitutional and dangerous travesty that it is.

  12. PD Shaw Avatar
    PD Shaw

    Bernard is right that changes in the tax code are often retroactive. Think about all of the Presidents and legislators that run for office campaigning to change the tax code. They get sworn into office in January and then over the next couple of months, pass new tax provisions effective that year. I believe that the courts consider these to be nominal retroactivity resulting from the vagaries of the political calendar.

    But this tax condemns transactions entered over a year ago, so I think it would be viewed with suspicion.

    The tax is not a loophole closer either. A loophole is a means of avoiding a general tax. To close the loophole of avoiding a 20% capital gains tax would require imposing a 20% tax, not the creation of a new super tax of 90% never before heard of.

  13. sam Avatar
    sam

    Well, after thinking about it, and considering the arguments of PD et al, I’ve come to the conclusion that the tax bill, if not an actual bill of attainder, is as close to one as I’ll see in my lifetime. We can only hope that the Senate cools the passions of the House, and deep-sixes this thing in committee (fette cinza, as one of my Italian friends would say). And Steve’s point is spot on–these bonuses are the smallest of small potatoes given all the other shit that’s going down right now. But folks OTB don’t seem to see it that way. How the politics will play out, I don’t know. The House vote was 328-93: 85 Republicans joined 243 Democrats in voting “yes.” It was opposed by six Democrats and 87 Republicans. I understand that even Eric Cantor voted for it, and that’s an indication, I guess, of how seriously pissed off the populace is.

  14. Rick DeMent Avatar
    Rick DeMent

    Ah, the living constitution. The gift that keeps on giving.

    Yeah and the funny part is it started almost before the ink was dry on the constitution. For those who think that “creative interpretation” is a 20th century invention … think again.

    As to the substance how it is that a tax cut can be retroactive? How is that that the law can be changed to lower taxes on income earned last year? Is that not exactly the same thing?

    I oppose this measure as being reactive and not really solving any problems but I’m not sure how it is unconstitutional when all tax changes seem to be retor active.

  15. Steve Verdon Avatar
    Steve Verdon

    I only hope Law Professor Obama is genuine enough to veto this bill as the unconstitutional and dangerous travesty that it is.

    As my grandma says, “Hope in one hand and spit in the other; see which gets full first.”

    You are going to be sorely disappointed, IMO.

    Yeah and the funny part is it started almost before the ink was dry on the constitution. For those who think that “creative interpretation” is a 20th century invention … think again.

    It is far, far more common today Rick. That is why we had that whole court packing issue in the 1930s.

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