Sunday, March 29, 2009
The Congressional Research Service has issued a report on the AIG bonus tax, Retroactive Taxation of Executive Bonuses: Constitutionality of H.R. 1586 and S. 651 (R40466) (Mar. 25, 2009). Here is part of the Summary:
This report analyzes the constitutionality of these bills. Specifically, it examines whether their
retroactive application violates the equal protection and due process guarantees of the Fifth
Amendment, rises to the level of a taking under the Fifth Amendment, or violates the prohibition
on ex post facto laws and bills of attainder. It reaches the conclusion that while certain aspects of
the proposed taxing schemes (particularly, the 90% rate in H.R. 1586 and statements in the
legislative history targeting specific taxpayers) may raise concerns under the Fifth Amendment
and ex post facto clause, the strongest arguments against their constitutionality seem to arise
under the bill of attainder analysis.
The two main criteria that the courts will look to in order to determine whether legislation is a bill
of attainder are (1) whether specific individuals are affected by the statute (“specificity” prong),
and (2) whether the legislation inflicts a punishment on those individuals (“punishment” prong).
The Supreme Court has identified three types of legislation which would fulfill the “punishment”
prong of the test: (1) where the burden is such as has “traditionally” been found to be punitive,
(2) where the type and severity of burdens imposed cannot reasonably be said to further “nonpunitive
legislative purposes,” and (3) where the legislative record evinces a “congressional intent
Although the bills would apply both prospectively and retrospectively, they would both appear to
meet the “specificity” prong. This is because each bill would apply, in part, to a specified group
of people, identified by past conduct, who cannot meaningfully withdraw from that group. As to
the “punishment” prong, confiscation of property has been found to be a “traditional”
punishment. Thus, the closer that a tax rate gets to 100% on income already earned, the more
likely that such a tax would be seen by a court as rising to the level of punishment. Also, the
deterrence of granting or receiving future bonuses would not appear to be an applicable
regulatory purpose where bonuses have already been paid. Thus, the most logical remaining nonpunitive
regulatory purpose for the statute would appear to be revenue raising. A review of the
legislative history established so far, however, seems to indicate that raising revenue is not a
primary purpose behind the proposed bills. Rather, the legislative history seems to contain
comments that would indicate the existence of a congressional intent to punish those individuals
receiving bonuses. Consequently, while both of these bills may raise constitutional issues, H.R.
1586 raises the most serious constitutional concerns.