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Thursday, March 19, 2009

Larry Tribe: 90% AIG Tax Is Constitutional

Laurence Tribe (Harvard) argues in the Atlantic and Wall Street Journal Law Blog that the proposed 90% tax on the bonuses paid out by AIG would pass constitutional muster under the Bills of Attainder and Ex Post Facto clauses Article I, Section 9; the Contract Clause of the Article I, Section 10; the Due Process Clause of the Fifth Amendment; and the Takings Clause of the Fifth Amendment.  (Hat Tip: Bruce Bartlett.)  For more, see:

http://taxprof.typepad.com/taxprof_blog/2009/03/larry-tribe-.html

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Comments

The comments to Tribe's diatribe in the WSJ Law Blog are much more enlightening and discuss pertinent Supreme Court cases. Tribe dashed off this poorly thought out missive to grovel for the next US Supreme Court nomination from the Obama administration

Posted by: Dale Newland | Mar 19, 2009 6:33:46 AM

There is a jurisprudence concerning tax retroactivity which involves a multipart test rather than a flat-out ban on retroactive laws. The long and short of it is that very few retroactive provisions have been held unconstitutional unless they imposed an entirely new tax (I believe there was one case in which a new estate tax, imposed for prior years, was so held). If I were looking for a constitutional objection to this proposal, I would probably look somewhere else.

Posted by: mike livingston | Mar 19, 2009 6:42:04 AM

We actually already have a tax that, with modification, would work in this situation. Under 4958, if a disqualified person receives excess compensation from a nonprofit, he is subject to a 200% excise tax if he does not correct by repaying the nonprofit. (The tax is 25% if he does correct.) A similar tax could be imposed on executives of companies receiving TARP money.

Posted by: Gribin | Mar 19, 2009 6:49:02 AM

It's frightening to see a prominent candidate for nomination to the US Supreme Court so willing and able to construct arguments against the plain meaning of the Constitution. The Ninth Amendment says simply: "No Bill of Attainder or ex post facto Law shall be passed." Judges and lawyers may obfuscate and evade, but common sense says that a 90% retroactive tax violates both of these restrictions: The whole point of the proposed law is confiscation.

I shudder to think of what would happen if Tribe applied this treatment to the First Amendment. The Constitution should not be putty in the hands of any branch of the government.

Posted by: AMTbuff | Mar 19, 2009 7:56:49 AM

I guess I should feel better now. They tax these guys 90% on what the Congress stole from the taxpayer. Then they can piss it off on something else. Good reasoning.

Posted by: Robert | Mar 19, 2009 10:19:57 AM

All of these idiotic arguments demonstrate the fact that we need a flat tax on everyone on all forms of realized income. No exceptions.

Posted by: John Krats | Mar 19, 2009 11:10:55 AM

Has no one considered that the AIG Financial Products group is headquartered in London and that a substantial portion of its employees may, in fact, not be U.S. residents for tax purposes? The proposed tax may not actually collect any money from many of its targets.

Posted by: ECM | Mar 19, 2009 12:24:38 PM

Thanks for sourcing all the materials; the bill finally passed. Will be interesting to see what happens in the Senate.

Posted by: Blackbook | Mar 19, 2009 12:29:05 PM

Flat tax? It would benefit only the rich. It's not a coincidence that folks like Steve Forbs are campaigning for it for years.
What we need to do is to get real about compensations. If we don't want shooting on the streets of course, because eventually it will come to that.

Posted by: nikolai pavlov | Mar 19, 2009 12:41:02 PM

90% tax on income for those making more than $250k is a fantastic idea! If ya can't scrape by on 20k a month you're not living right. Oh and zero tax for everyone making less than $50k. As for bonuses, tax 'em at 95% and if they complain audit them!

Posted by: bosunj | Mar 19, 2009 1:05:32 PM

Whether this tax is or is not constitutional is for the Supreme Court to decide. I find it interesting that anyone would talk about an argument for this tax as undermining the constitution when seen in light of the Court's decision in Bush v. Gore. The Constitution clearly outlines the process for settling a disputed presidential election and that process does not involve the Court. Once the Court decided to hear that case and rule on it, that set a precedent for the Court to interpret the Constitution any way the members choose to interpret it. The Court should have refused to hear Bush v. Gore and the election should have been decided by the House of Representatives. The outcome probably would have been the same, i.e., Bush would have been president, but the integrity of the Supreme Court would not have been compromised.

Posted by: Stephanie | Mar 20, 2009 11:20:29 AM