An unnecessary 90% tax

Today, Congress wasted precocious time drafting and voting on a piece of legislation to place a 90% tax on to bonuses received by individuals who work for TARP funded companies. After it was discovered that Chris Dodd and the Obama Administration put into the stimulus package a clause to allow bonuses to be given to companies that received TARP funding, Congress put on a show of being upset and promised to get the money back. Well, I have to say that this is all unnecessary.

Before I go to far, let me just say up front that these individuals shouldn’t have received large bonuses if the companies were in dire economic condition. And if bonuses were needed to reward individuals, it should have been given in the form of company stock. That way, they would have a vested interest in improving the company’s financial situation.

Unfortunately, AIG used cash to provide bonuses last year, to the sum of $165 Million. These bonuses were written into compensation contracts, and the rushed stimulus package protected all contracts prior to February 11th. So where does Congress get off saying, “Oops, my bad. Gimme back that money,” when they said it was ok just a month ago?

Rushed legislation caused this mini fiasco, and now we have rushed legislation to “fix” it. However, is this 90% tax actually constitutional? Article I, Section 9 of the Constitution states:

No Bill of Attainder or ex post facto Law shall be passed.

A Bill of Attainder is a process where the Legislature supercedes the Judicial by singling out one or a small group of people for punishment, such as high taxation. Justice William H. Rehnquist referred to it this way:

“These clauses of the Constitution are not of the broad, general nature of the Due Process Clause, but refer to rather precise legal terms which had a meaning under English law at the time the Constitution was adopted. A bill of attainder was a legislative act that singled out one or more persons and imposed punishment on them, without benefit of trial. Such actions were regarded as odious by the framers of the Constitution because it was the traditional role of a court, judging an individual case, to impose punishment.”

So let’s recap for a second. We have spent more time having hearings on the AIG bonuses and drafting legislation for new taxes than we spent reading and debating the original stimulus bill. You would think that if this was the other way around, there could have been debate on Dodd’s compensation amendment before voting. But since that didn’t happen, the House has passed a rushed piece of legislation that may or may not be constitutional. This can easily lead to those targeted under the Bill of Attainder to challenge the law in court, costing more than the $165 Million that is being debated.

Why are we wasting our time on this? Congress, just accept that you screwed up. You lived up to the old saying, “Haste makes waste.” These bonuses were provided legally under the legislation you voted for, so you have no grounds to go back and demand the money to be returned. And now you are setting the foundation for more time and money to be wasted over a legal battle. Don’t you ever learn?

Related articles:
Tech Law Journal – “Bill of Attainder”
Prison Planet – “Paul: Bill to tax bonuses an ‘outrage’ and unconstitutional”
TaxProf Blog – “Larry Tribe: 90% AIG Tax is Constitutional”
Real Clear Politics – “Dodd’s Deep Doo-Doo”
Just Politics – “Bread & Circuses (& Bonuses)”