"The ex post facto clause applies exclusively to criminal punishment and poses no difficulty here"

[ProSense]

Harvard Law Prof: Big Tax on AIG Bonuses Could Be Constitutional

By Debra Cassens Weiss

Harvard law professor Laurence Tribe says a high tax on bonuses paid to executives by companies receiving bailout funds could likely be structured in a way to avoid constitutional problems.

Some proposals are circulating to tax bonuses at rates varying from 70 percent to 100 percent as a way to recoup the $165 million paid to executives at AIG, the Wall Street Journal (sub. req.) reports.

One issue is whether such a bill violates the Constitution’s ban on Bills of Attainder that punish a person or group without a trial. Tribe told the Wall Street Journal that Congress could avoid that constitutional problem with a broad bill that doesn’t target “a closed class of named executives.” Also blunting any Bill of Attainder challenge would be the fact that the aim of the tax is fiscal rather than punitive, and it would apply in the future as well as retroactively, Tribe wrote in a summary posted at the Atlantic.

Another issue is whether retroactive taxes violate the ex post facto clause. Actually, it's a nonissue, Tribe says. "The ex post facto clause applies exclusively to criminal punishment and poses no difficulty here," Tribe told the Wall Street Journal Law Blog.

Tribe also addressed whether the law would violate the contracts clause, the takings clause and the due process clause in the Wall Street Journal Law Blog interview. He saw no problem. Many courts have ruled requirements for substantive due process are not violated if the legislation has a rational legislative purpose, "something nobody could deny in this instance," according to Tribe.

The Wall Street Journal also points out that a tax rate approaching 100 percent is not unprecedented. The top federal income-tax rate was once 90 percent, and some excise taxes on specific transactions have hit 100 percent.

I'm in the process of taking a closer look at this issue at the request of several others both in and out of government, but I can tell you this much on the basis of what I know from my past research and experience: 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.

Such a tax would presumably be leveled on the basis of some criterion sufficiently general to avoid classification as a measure targeting solely a closed class of identified and named individuals. The fact that the individuals subject to the tax in its retroactive application would in principle be readily identifiable would not suffice to doom the tax either from a bill of attainder perspective or from a due process perspective. Moreover, the fact that the aim of such a tax would be manifestly regulatory and fiscal rather than punitive and condemnatory, and that the tax would be part of a measure that would be prospective as well as retroactive in its operation, would serve to blunt the force of any bill of attainder challenge. Finally, such a tax would be devoid of the sting of political retribution and would not partake of the classic "trial by legislature" that the attainder ban was designed to avoid.

All things considered, I believe it very likely that Congress could design a fully constitutional means of clawing back into the federal treasury all amounts paid (or to be paid in the future) in the form of retention bonuses from federal funds disbursed either by the Federal Reserve Board pursuant to legislative authorization tracing to the 1930s or by the Treasury pursuant to the most recently enacted federal bailout and stimulus measures.

link

Obama Praises Bonus Tax, Looks Forward To Getting Final Bill

[LSparkle]

1. Typical of Repugs to characterize taxes as PUNISHMENT ...

Thank you, Frank Luntz (the Dunce).

[RepublicanElephant]

2. obama, the former constitutional law professor, knows. nt

:)

[Median Democrat]

3. As Noted, A 90 Percent Top Marginal Tax Rate Is No Biggy

If anything, the Bush tax cuts are what fell out of the norm.

<>

[AZ Criminal JD]

8. No one argues that a 90% or even 100% tax would be unconstitutional

Most legal experts think a selective tax on indiviudals would be unconstitutional no matter what the rate.

[stillcool]

4. I'm stunned...

I didn't think this had a chance of withstanding a legal challenge.

[ProSense]

14. After a billion

excuses from apologists it's easy to start believing the spin.

[stillcool]

16. I didn't read much about it...

because it seemed outrageous to me, that these 100 or so employee's could be singled out and have their compensation contracts taxed. It would seem to me, that when the government agreed to include these contracted bonuses in the bail-out bill, they are legally required to honor them. How can you go back and change the content of the contract after the fact? Even if the bonuses bankrupted the corporation, and the government hadn't involved itself at all, wouldn't those contracts still need to be honored?

[Laelth]

5. Agreed. Right to contract is protected by the courts only at low scrutiny.

All the government has to have is a "rational" basis for its law, and the Court will let said law abrogate nearly any contract. There's nothing sacred about an employment contract. They may be abrogated by the government, at will, so long as the government can articulate a rational basis for doing so.

I think we have a rational basis.

:dem:

-Laelth

[ProSense]

17. But that will not stop the spin. n/t

[AZ Criminal JD]

6. I wonder ifTribe would have a problem about a special tax

on university professors who are paid beyond a certain amount. I suspect he would find no end of Constitutional problems. If these type of "special" taxes are Constitutional why not a special tax on registered Republicans? There are no end of possiblities. I notice Tribe was silent about Article I, Section 9, part 3 -- bills of attainer. I guess he didn't have an answer for that one.

[ProSense]

7. Oh nonsense.

Do university professors get bailout money?

Why not let AIG take the billions in tax payers money and build brand new offices, purchase jets and buy homes for all it's executives?

The crying over AIG is pathetic.

[Mojorabbit]

9. If the universities

end up with bailout money down the road it could happen. Stimulus money is going int a lot of schools.
I don't like the precedent.

[depakid]

15. University of Oregon got bailout funds from AIG

Here's how that worked:

...The State of Oregon... got $270 million from AIG.

So what was that money for?

James Sinks, a spokesman for State Treasurer Ben Westlund, tells WWire that the payment was for a guaranteed investment contract (also called a GIC) the state entered into with AIG in 2008 after selling bonds to fund construction of the University of Oregon's new basketball arena.

Here's Sinks' explanation:

AIG won the GIC through a competitive bid for the U of O arena bond proceeds last summer when they were still a highly rated company. Once AIG’s true financial situation was revealed in Sept 2008 and they were downgraded by the rating agencies, we were allowed under the investment agreement to get our funds returned.

GIC's are a pretty common, low-risk vehicle that allow bond issuers to park the proceeds of a bond sale in a safe place until the money is needed. In this case, for example, the state sold bonds for the U of O but would not need to begin paying the construction firm and other contractors for several months.

Where AIG went wrong—one of many places as it turns out—is when it guaranteed counterparts such as the U of O a return of say 5 percent, to pick a number. It then used the money the U of O purchased the GIC with to purchase higher-yielding securities back by assets such as sub-prime mortgages.

AIG might hope to earn 7 percent from the asset-backed securities. If all went according to plan, AIG pocket the 2 percentage point difference between what it agreed to pay U of O and the 7 percent yield on the asset-backed securities.

AIG engaged in billions of dollars of such arrangements, only to see the trade go horribly wrong when the asset-backed securities plummeted in value, rather than yielding the expected return.

More: http://www.wweek.com/wwire/?p=24247

[AZ Criminal JD]

10. This is a legal issue and you presented no legal arguements

University professors receive stimulous money. High paid professors, like Tribe, receive bailout money when they serve on boards or advisory groups to some of these corporations. If we could examine Tribe's 1040 I'll bet we would find all sorts of interesting things. BTW I don't believe we should have given AIG one dime of money. I think both Bush and Obama made a mistake when they agreed to do this. Of course since Geithner was in the room when both adminstrations made the decision it is no wonder.

[ProSense]

11. The government collects back taxes all the time, and pass retroactive tax laws all the time.

As adopted in October 1986, 26 U.S.C. 2057 granted an estate tax deduction for half the proceeds of "any sale of employer securities by the executor of an estate" to "an employee stock ownership plan" (ESOP). In December, 1986, respondent Carlton, acting as an executor, purchased shares in a corporation, sold them to that company's ESOP at a loss, and claimed a large 2057 deduction on his estate tax return. In December, 1987, 2057 was amended to provide that, to qualify for the deduction, the securities sold to an ESOP must have been "directly owned" by the decedent "immediately before death." Because the amendment applied retroactively, as if it were incorporated in the original 1986 provision, the Internal Revenue Service (IRS) disallowed Carlton's 2057 deduction. The District Court entered summary judgment against him in his ensuing refund action, rejecting his contention that the amendment's retroactive application to his transactions violated the Due Process Clause of the Fifth Amendment. The Court of Appeals reversed, holding that such application was rendered unduly harsh and oppressive, and therefore unconstitutional, by Carlton's lack of notice that 2057 would be retroactively amended and by his reasonable reliance to his detriment on pre-amendment law.

link

High Court Backs Closing Tax Loophole Retroactively

By LINDA GREENHOUSE,
Published: Tuesday, June 14, 1994

The United States Supreme Court ruled today that Congress did not violate the Constitution when it closed a tax loophole retroactively in 1987 and collected back taxes from those who had relied on the original provision.

The 9-to-0 decision involving an estate tax provision overturned a 1992 ruling by a Federal appeals court in California, which held that the retroactive application of the amended provision violated the constitutional guarantee of due process of law.

Because Congress often acts retroactively in the tax area -- most recently, in last summer's budget package that raised tax rates retroactively to the beginning of 1993 -- the decision alarmed the Government and prompted the Clinton Administration to seek Supreme Court review. This case involved an estate tax provision of the Tax Reform Act of 1986.

But in a second important decision today, the Government did not fare nearly as well. The Court ruled unanimously that the Federal Deposit Insurance Corporation is bound by state law when it takes control of a failed savings and loan and seeks to recover losses by suing the lawyers and accountants who had advised the previous management.

more

On edit: Bush's tax cut in 2001 was retroactive.

Maybe while everyone is feeling sorry for AIG, the government can

let them slide on this: House Dems Find 13 Bailout Recipients Owe Back Taxes -- After Telling Treasury They Didn't

[AZ Criminal JD]

12. The examples you cite apply to all taxpayers who come under the law

The AIG proposal only applies to taxpayers in a specific category that has no relation to the tax code. If the government can do this then they can tax anyone who is politically out of favor at the moment. Who knows maybe you will be in the gunsights of a future government.

[ProSense]

13. "If the government can do this then they can tax anyone who is politically out of favor"

What? Is that what AIG and the banks are under fire for: being "politically out of favor"?

Read the OP again. Tribe makes it very clear how this is done.

[HiFructosePronSyrup]

18. If we allow gay marriages, a man can marry a box turtle!

:crazy: