There are two arguments that opponents of the House’s bill taxing AIG bonuses cite as evidence of its unconstitutionality.
1. The House law is a Bill of Attainder.
2. The House bill is illegal because its retroactive
This might be good politics but its bad legal reasoning.
The major problem with the argument made by critics is that its based on the legality of the substance, instead of the legality of process. (Which a bill of attainder would fall under.)
Let’s say I file a tax return with the government and they write me a check for $500. A month later they realize they made an error and the check was supposed to be for $50. Can they legally take away that $450? Yep. This is essentially the same process the government is using in its decision to tax AIG bonuses.
Politics aside, this is the fundamental legal issue regarding AIG’s taxed bonuses. Can the federal government recoup misallocated funds ex post facto.
Retroactvity or Ex post facto
The Supreme Court has consistently ruled in favor of retroactive tax laws. The most recent example occurring in the unanimous 1994 Supreme Court case United States v. Carlton. Here’s a relevant passage from conservative Justices Scalia and Thomas:
United States v Carlton:
The reasoning the Court applies to uphold the statute in this case guarantees that all retroactive tax laws will henceforth be valid. To pass constitutional muster the retroactive aspects of the statute need only be “rationally related to a legitimate legislative purpose.”
Bill of Attainder?
But what about the bill of attainder issue? Does the House bill unfairly punish a small group of individuals? Nope. Here’s why.
When drafting the House bill media outlets reported it as a tax on AIG bonuses. But you know as well as I do that the MSM, often…um misreports news. Edward McCaffery, a tax law professor at the University of Southern California explains:
The measure doesn’t single out employees at AIG and instead uses general language affecting all companies receiving more than $5 billion in federal bailout money. Bonuses for employees at Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley would be affected.
The House took additional steps by allowing corporations that pay back federal funds to pay the bonuses minus the 90% tax. Thus, if AIG REALLY wanted to pay these bonuses they could just return the federal bailout money.
Are all of these laws and language sneaky legal wording? Yes, most laws are. Do I feel bad for AIG. No. These executives, don’t deserve the bonuses as you pointed out. If we can legally recoup them, which 90% of the evidence points to then the government should use ever legal option it has to recoup taxpayer money.