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Why the Recipients of the AIG Bonuses Will Almost Certainly Not Have to Give Them Back

Being an attorney, my husband, Steve, has some strong opinions about the brouhaha surrounding the AIG bonus debacle and the Democrats' attempt to recover the bonus money. I told him that if he wrote a post, I would publish it.

****

The cacophony of demands by President Obama, Senator Schumer, and other members of Congress (including, ironically, Senator Dodd, whose amendment authorized this mess in the first place) to the effect that the recipients of the $165 million in AIG bonuses must either give the money back or suffer the full wrath of the United States Treasury department in the form of a confiscatory one hundred percent taxation, betrays not only a rank political posturing but an abject ignorance of our Constitution and established legal precedent going back well over two hundred years.

Now, I am only a simple small town lawyer and not a constitutional lawyer like President Obama, but I find it odd and bitterly amusing that our President once dabbled in teaching that subject. Apparently his studies never included Article I, Section 9, clause 3 of that document, which expressly forbids "bills of attainder."' Of course, I'm sure Professor Obama spent plenty of time teaching his students about penumbras, but it might serve him well to take a short refresher course. What's a bill of attainder? It's a law that is written that is specifically aimed at an individual or small group of individuals, with the express purpose of punishing or penalizing them in some fashion. It is also referred to as a "private bill." The British did this on a regular basis in the 1700s, which is one reason why the Constitution absolutely forbids it. The idea of taxing specific employees of AIG in order to "recover" their bonuses is an almost perfect example of a bill of attainder.

Well, since we're talking about the Constitution, that inconvenient old document, let's keep reading Article I, since section 9 also prohibits the passage of ex post facto laws. An ex post facto law is one that is passed after the event to which it relates has occurred (another favorite strategy of the British.) If Congress were to make the receipt of these bonuses taxable at a rate different than they are taxable now, and then enact a criminal penalty for the failure to pay, it would clearly be an ex post facto law and therefore would violate Article I. I suspect even Stephen Breyer would agree with that conclusion.

Well, both of those arguments would likely be enough for most courts, but since we're perusing the Constitution, we might as well mention the concept of Equal Protection, since a law taxing only AIG employees would clearly violate it. We may not be happy about the AIG bonuses, but in fact, under the law, they are no different than all the other millions of bonuses distributed to employees of other companies all over America that will be taxable next year. Consequently, the money cannot be treated any differently by the IRS than anyone else's money.

Of course, we haven't even mentioned the fact that some of the employees are not United States citizens and actually live in foreign countries, so it's doubtful that such a tax law would apply to them, thus again triggering an equal protection problem.

It is really not surprising that Senators Dodd and Schumer apparently have a very dim understanding of our founding legal document, and it isn't even surprising that the President treats the matter so cavalierly, since they are desperately trying to regain political face. What is surprising, and even disturbing, is that very few people seem to have noticed the blatant disregard for over two hundred years of legal and constitutional precedent that is implicit in the idea of taxing a group of people at a one hundred percent tax rate, not to mention the danger it could present to every American in the future if such a law were to be passed.

Of course, the law probably won't be passed, and if it were, it would be struck down for all of the reasons I have enumerated, and probably a few others. But the fact that the Obama administration and Democrats in Congress seem to think that such a law is a reasonable solution to this problem of their own making should concern all of us.

Update:The New York Post writes that the new House bill will "impose a confiscatory 90 percent income tax on the AIG bonuses and perhaps those given after Dec. 31 to top executives at all companies that got more than $5 billion in government bailout money." The Post points out that many of these firms only accepted these funds because they were pressured intensely to do so in the first place and because they were assured they wouldn't be punished later for it:

Four big New York employers each, it needs to be noted, a major local tax-revenue generator seem to be squarely in Pelosi and Rangel's sights: Citigroup, JP Morgan Chase, Goldman Sachs and Morgan Stanley.

Many banks entered the federal bailout program because of intense pressure from Washington and many only after being assured that confiscatory taxation and other ex post facto penalties would be off the table.

It seems Democrats are quickly scrambling to renege as fast as they can on the assurances that confiscatory taxation and ex post facto penalties wouldn't be applied.

Update II: Charles Krauthammer on last night's Special Report, via The Corner:

And the problem here is that by the Congress now trying to break the contracts by a ruse, essentially a 100 percent taxation or confiscation, they're going against a few hundred years of common law where you don't do retroactive confiscation or bills of attainder, which are laws aimed at particular individuals. It's just not done.

And to sacrifice all of those principles of democracy and business and contract over, as Rich indicated, a tenth of one percent of the bailout, is absurd, particularly in a Congress which just a week ago signed a bill with enough pork to fund these bailouts for about 20 years.

No kidding.


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Comments (45)

Nice post. There i... (Below threshold)
retired military:

Nice post.

There is only one flaw.

You are talking about the Constitution and the democrats dont particularly care about that musty old document.

If the rhetoric coming out ... (Below threshold)
Oldflyer:

If the rhetoric coming out of Barney Frank, et al doesn't send chills up your spine you are not thinking clearly.

If they are able to pull this off, then no one who incurs the displeasure of our "public servants", can ever feel safe.

This column explains the issues quite clearly. I have also stated to my wife that they cannot do what they threaten. However, I am not as confident as I profess to be; because I have only marginal confidence that today's courts will actually apply the Constitution. We know that certain of the Supremes will consult, and possibly defer to French law before ruling. Several will want to test public opinion, and the contextual circumstances, etc.

"But the fact that the Obam... (Below threshold)
GarandFan:

"But the fact that the Obama administration and Democrats in Congress seem to think that such a law is a reasonable solution to this problem of their own making should concern all of us."

But you don't understand. To paraphrase it:
"They won."

Thanks for the explanations... (Below threshold)

Thanks for the explanations...great post.

But really, these days the Congress has a new motto: "Constitution shcmonstitution."

Oh, and a technical question: Does Article 1 Section 10 apply to the federal government, or just to the states?

http://www.rightklik.net/

Oh, and a technica... (Below threshold)
Oh, and a technical question: Does Article 1 Section 10 apply to the federal government, or just to the states?

Steve says only to the states.

Thanks... so I suppose the ... (Below threshold)

Thanks... so I suppose the Federal Government can write a "Law impairing the Obligation of Contracts."

Apparently his studies n... (Below threshold)
Brian:

Apparently his studies never included Article I, Section 9, clause 3 of that document, which expressly forbids "bills of attainder."'

Like this one?

If Congress were to make the receipt of these bonuses taxable at a rate different than they are taxable now, and then enact a criminal penalty for the failure to pay, it would clearly be an ex post facto law and therefore would violate Article I. I suspect even Stephen Breyer would agree with that conclusion.

Probably not:

In the early 1980s, Congress created a tax deduction to encourage people to sell stock in a company to that company's employee stock option plan (ESOP). ... Congress in 1986 repealed the tax deduction and applied the repeal retroactively, costing the estate more than $600,000. Justice Scalia's comment notwithstanding, the Supreme Court unanimously upheld the government's assessment of the tax.

In April 1976, E. M. Darusmont ... had to pay tax on only half that amount. Then, in October, President Gerald Ford signed the Tax Reform Act of 1976, which retroactively increased the minimum tax. The Darusmonts had to pay an additional $2,280, which, for a family like the Darusmonts, in 1976 dollars, was not an insubstantial sum. This outcome wholly undercut their planning, yet the Supreme Court upheld the government's assessment of the tax.
...
Congress has been adopting retroactive tax increases for a very long time, essentially since the 1930s. The 1913 Revenue Act was the first one with an effective date before the date of the actual enactment. Generally, the increased tax rate is applied retroactively to the year in which it is enacted. But in 1918 and 1926, each of the Revenue Acts was applied to the entire calendar year that had preceded enactment. As early as 1935, one commentator pronounced restrictions on retroactive taxation to be "dead."

There is only one flaw.<... (Below threshold)
Brian:

There is only one flaw.
You are talking about the Constitution and the democrats dont particularly care about that musty old document.

Hmm... May 2006, Republican Congress, Republican president, Republican Senator Charles Grassley leading the charge:

The sudden, and retroactive, imposition by the U.S. Congress last week of much higher taxes on Americans living abroad has left individuals and companies scrambling to regroup, while many executives and entrepreneurs assert that the move could backfire by hurting U.S. business interests at home and abroad.

Oops.

Hmm... May 2006, Republi... (Below threshold)
Clay:

Hmm... May 2006, Republican Congress, Republican president, Republican Senator Charles Grassley leading the charge:

Brian, are you that dumb? You want to give 'your guys' a pass because the Republicans are stupid, too? Use you're friggin' brain you dumb shit. Wake the hell up!

Do you people get this lttle tit for tat game the partisans are playing?

America is dying and you want to play games? Your kids should hate you for what you're doing to their country. This is insanity!

I have been hearing since b... (Below threshold)
MPR:

I have been hearing since before the nominating process was over that Obamalala was a constitutional professor, Then it was, he was a teacher not "actually" a professor. Then we heard that he was not known for his scholarship according to his associates and he never published. Which adds to the argument that he was not the author of his books but, that's another issue. Well, then his transcripts and college records weren't going to be available. You could say at this point that he at least passed the bar exam if nothing else can back up his claim to understand the Constitution. Maybe he slept through the classes covering Article 1.or the First Amendment or the Fifth or the Second or............

Maybe he slept through t... (Below threshold)
Clay:

Maybe he slept through the classes covering Article 1.or the First Amendment or the Fifth or the Second or............

I guarantee he didn't sleep through anything. He's paying attention while we're operating the remote. American Idol is on. Who do you think will win?

You are talking about th... (Below threshold)
James Cloninger:

You are talking about the Constitution and the democrats dont particularly care about that musty old document.

So, which Party is shredding the Constitution now?

He's paying attention to th... (Below threshold)
MPR:

He's paying attention to the NCAA tournament that's about it.

Brian the Troll is convenie... (Below threshold)
Steve Priestap:

Brian the Troll is conveniently ignoring the central point of my post, which is that the proposed law is both a bill of attainder and a violation of equal protection since it only applies to a small selective group. The tax examples he cites applied to everyone, so they are only relevant if we are limiting our objection to retroactivity. I'm aware that tax increases as well as tax cuts have been retroactively imposed and have survived constitutional challenge, but never to a group as narrowly defined as this one.

Brian, are you that dumb... (Below threshold)
Brian:

Brian, are you that dumb? You want to give 'your guys' a pass because the Republicans are stupid, too? Use you're friggin' brain you dumb shit. Wake the hell up!

So the Dems are accused of planning (not even doing) something unconstitutional, and I point out that not only has the SCOTUS multiple times and unanimously upheld that action, but Republicans recently did the same thing with full fervor, and I'm the partisan dumb shit who's not using my brain?

Sorry, your argument isn't compelling.

So, which Party is shred... (Below threshold)
Brian:

So, which Party is shredding the Constitution now?

Well, no one, if you bothered to read the thread at all.

"So, which Party is shreddi... (Below threshold)
GarandFan:

"So, which Party is shredding the Constitution now?

Well, no one, if you bothered to read the thread at all."

You still have not responded to Steve's point. This new law is quite narrow in scope, so narrow as to confine itself to a relative handful of specific people. How is this not then a bill of attainder?

I await your scholarly response.

Brian the Troll is conve... (Below threshold)
Brian:

Brian the Troll is conveniently ignoring the central point of my post

I didn't ignore it. I responded directly on point. Your three points were bill of attainder, retroactivity, and equal protection. I provided counterpoint to two of them. I'm not a lawyer, so I would welcome you educating me as to how they don't apply to the current situation.

If you're "aware that tax increases as well as tax cuts have been retroactively imposed and have survived constitutional challenge", then why bother raising the issue of ex post facto laws to begin with? And why did you state that an ex post facto tax laws would be unconstitutional?

I'm aware that tax increases as well as tax cuts have been retroactively imposed and have survived constitutional challenge, but never to a group as narrowly defined as this one.

Are you aware of such laws that have been actively struck down? Or are you just not aware of any, period?

You may be right. But if you're going to accuse Obama of "an abject ignorance of our Constitution and established legal precedent going back well over two hundred years", I assume you have some, you know, established Constitutional and legal precedent to cite.

How is this not then a b... (Below threshold)
Brian:

How is this not then a bill of attainder?

I didn't say it wasn't. It may very well be. The legal rulings regarding bills of attainder have been very inconsistent over the years:

A statute which inflicts its deprivation upon named or described persons or groups constitutes a bill of attainder whether its aim is retributive, punishing past acts, or preventive, discouraging future conduct.
However expansive the prohibition against bills of attainder, it surely was not intended to serve as a variant of the equal protection doctrine, invalidating every Act of Congress or the States that legislatively burdens some persons or groups, but not all other plausible individuals. In short, while the Bill of Attainder Clause serves as an important "bulwark against tyranny," it does not do so by limiting Congress to the choice of legislating for the universe, or legislating only benefits, or not legislating at all.

Whether this would qualify is for a court to decide. But believing that it won't certainly does not demonstrate "an abject ignorance of our Constitution and established legal precedent going back well over two hundred years". The ignorance is displayed by anyone who thinks it's a clear-cut case.

I believe Obamalala and his... (Below threshold)
MPR:

I believe Obamalala and his liberal hoard show their ignorance and contempt everyday.

I assume, based on this bri... (Below threshold)
jp2:

I assume, based on this brief error-riddled writing, that Mr. Kim Priestap perhaps only does pro bono work? No way he passed the bar with this kind of stuff.

If you are actually interested in a real Constitutional lawyer's opinion, check out Glennzilla.

http://feeds.salon.com/~r/salon/greenwald/~3/t2t0IttSlHg/index.html

And speaking of retroactive... (Below threshold)
Brian:

And speaking of retroactive possible bills of attainder, does anyone remember this oldie but goodie?

> Of course, the law pro... (Below threshold)
Arthur:

> Of course, the law probably won't be passed, and if it were, it would be struck down for all of the reasons I have enumerated, and probably a few others. But the fact that the Obama administration and Democrats in Congress seem to think that such a law is a reasonable solution to this problem of their own making should concern all of us.

What concerns me even more is that they don't have to pass the law. Wednesday's Show Trial of Liddy was enough to convince many of the bonus recipients to give back some or all of their bonus.

It doesn't matter what the Constitution prohbits or allows. We're in the Age of Show Trials now.


"Glennzilla" must feel awfu... (Below threshold)
JB:

"Glennzilla" must feel awfully stupid defending Dodd now.

'Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward - after previously denying any involvement in writing the controversial provision.'

Obama knows about bills of ... (Below threshold)
braininahat:

Obama knows about bills of attainder, he's trying to use misguided public outrage in order to violate the Constitution now so he can set a precedent for future violations when it comes to other private citizens on things such as guns, freedoms, rights, etc.

http://tinyurl.com/cws7te

#21 jp2Your link i... (Below threshold)

#21 jp2

Your link is irrelevant to the discussion topic. Either you didn't read this post or you didn't read the link you provided.

________________________________________

Thanks for the comments Steve. Interesting post.

as usual, the obamatons in ... (Below threshold)
wolfwalker:

as usual, the obamatons in these comment threads provide perfect examples of what's wrong with modern American politics. Kim's argument may or may not be constitutionally valid, but the libs don't even try to attack that argument with reason, logic, facts, or legal precedents. Instead, in true Blue State style they sniffle "your side did it too!", never even noticing that retroactive changes to tax law are only to the start of the current tax year. This is not considered an ex post facto law, probably because taxes are not actually due until the end of the tax year. Both parties have made use of this subtle little loophole in the past.

Here's a clue free of charge, for everyone: When presented with an argument based on reason, fact, logic, the letter of the law, the spirit of the law, or any other aspect of reality, the right way to counter it is with a better reality-based argument. "So's your old man!" and "You started it!" don't qualify. (Unless, of course, you're dealing with a liberal to whom facts, logic, reason, and the letter of the law don't matter. In that case, anything goes.)

I believe ex-post fact only... (Below threshold)
hcddbz@mac.com:

I believe ex-post fact only has been applied to criminal law. Do you know cases where it been used outside of that? Other than that nice post.

Look it it is March of 1933 and the Brown shirts need a target.

The president has used harsher Rhetoric against AIG employees than against the terrorists , (opps forget cannot call them that), enemy combatants , (opps cannot call them that), inhumane pigs who are engaged in The War of Terror opps cannot call it that.

Frist it will AIG and then it will be wall street and then it will be people who make over X.

While people are screaming about AIG. The troops are getting the Shaft so that BHO can save 534 Million on health care, for American's who put their life in harm's way to defend us.

Then he has also renewed talk of funding his Civilian Security forces in the Grand tradition of Committee for State Security , Federal Security Service and the Protective Squadron aka (KGB,FSB and SS).

Since Congress has wasted Trillions it is time for them to put Some skin in the Game

Fantasy
I say congress and the president which receive 100% of their pay and benefits at the expanse of the American Tax payer should return all monies gained from their pay raise. Also let see all thier pay taxed at 91%.

They will then establish an account called SSN with these monies and they will continue to pay into it until the Trillions of dollars they stole from the American people is paid back. Furthermore all money collected from TRAP goes into SSN account. All FICA taxes will also go into that account and can only be accessed by the recipient that contributed to it. . This account cannot be used to fund anything except SSN.

hcddbz@mac.com: Yo... (Below threshold)

hcddbz@mac.com:

You are right. Ex post facto does generally apply to criminal laws, which is what Steve said in his post:

If Congress were to make the receipt of these bonuses taxable at a rate different than they are taxable now, and then enact a criminal penalty for the failure to pay, it would clearly be an ex post facto law and therefore would violate Article I.
Wow, the trolls really show... (Below threshold)

Wow, the trolls really showed an inability to comprehend written material on this post...anyway...

-

not only a rank political posturing but an abject ignorance of our Constitution and established legal precedent going back well over two hundred years

What I want to know is why I have yet to hear the words "abuse of power" fall from the lips of any of my newspapers or newsreaders.

A few points.(1) T... (Below threshold)

A few points.

(1) The Bill of Attainder argument appears to be mooted by the fact that the legislation being considered by Congress today applies to anyone who receives a bonus from an entity that received TARP funds over $ 5 billion. That's likely to be general enough to make the Attainder argument moot.

(2) This would also likely be enough to withstand an equal protection challenge, especially since AIG employees would not be considered a suspect class for equal protection purpose.

(3) The Ex Post Facto Clause only applies to criminal statutes, per the Supreme Court's decision in Calder v. Bull.

amazing...nearly 12 hours a... (Below threshold)

amazing...nearly 12 hours after the post was posted that specifically notes the criminal element and 40 minutes after Kim AGAIN points out that that is what the post says...people still post comments that the post is wrong because it doesn't note the ciminal aspect.

For crying out loud, why not just head your comments with "I didn't bother to actually read the post, but here's what I have to say about that..."

Falze,What about p... (Below threshold)

Falze,

What about points 1 and 2 ?

The attainder and equal protection arguments just don't fly.

Also, its worth noting that... (Below threshold)

Also, its worth noting that the legislation being considered does not include criminal penalties of any kind.

Therefore, Steve's ex post facto point doesn't really apply.

wolfwalker,but ... (Below threshold)
Brian:

wolfwalker,

but the libs don't even try to attack that argument with reason, logic, facts, or legal precedents.

Perhaps you missed the posts where I provided legal precedents.

Not to mention where I invited Mr. Lawyer to provide precedents of his own, for which we are still waiting.

never even noticing that retroactive changes to tax law are only to the start of the current tax year.

How about where I said:

Generally, the increased tax rate is applied retroactively to the year in which it is enacted. But in 1918 and 1926, each of the Revenue Acts was applied to the entire calendar year that had preceded enactment.

Next time you post, first try knowing what you're talking about.

Ex post facto does gener... (Below threshold)
Brian:

Ex post facto does generally apply to criminal laws, which is what Steve said in his post:

Yes, he did. So what was the point of that argument then? He therefore apparently knows that ex post facto doesn't apply in this case, and he also claims to be aware that tax laws can be retroactive.

Thus, why the argument that the bonuses will not have to be given back because ex post facto laws with criminal penalties are unconstitutional?

I just noticed that my post... (Below threshold)
Brian:

I just noticed that my post #7 didn't have a link for the blockquote. It's here.

Conor Clarke <a href="http:... (Below threshold)
James H:

Conor Clarke quotes Laurence Tribe arguing that such a taxation could be structured so it's not a bill of attainder.

FWIW: Even if it's not technically a bill of attainder, it still smells like one to me. Seems to me Geithner had an equitable solution to the mess: Deduct the cost of bonuses from the next set of bailout funds AIG is set to receive.

Arguing with the Left conce... (Below threshold)
Ymarsakar Author Profile Page:

Arguing with the Left concerning the law has about the same benefits arguing about Iraq's WMDs. They do not care about such things. All of it is only a smoke screen to cover their unbridled pursuit of power.

Ymarsakar,I am not... (Below threshold)

Ymarsakar,

I am not of the left, far from it as a matter of fact, but the truth of the matter is that the Constitutional argument against the Bonus Tax bill that Congress is considering are, at the best, very, very weak:

http://tinyurl.com/d89m7v

At most this is an academic debate, though, because there's no way the Courts are going to strike this down given how weak the arguments against it actually are.

Falze,Thier no new... (Below threshold)
hcddbz:

Falze,

Thier no new law. They would simply use the laws that already exist in the Tax code.

It sill smacks of goverment overreaching.

I agree with you on subject... (Below threshold)
tgm:

I agree with you on subject generally and think that this tax is a terrible idea.

However, I do not think the analysis of ex post facto law is correct. That doctrine only applies to criminal law and the tax code civil (fact that you can be put in jail for not paying does not make it criminal). There are a number of case, including US Supreme Crt which hold that ex post facto not applicable to tax cases.

Bill of attainder is best argument against.

"Seems to me Geithner ha... (Below threshold)
Oyster:

"Seems to me Geithner had an equitable solution to the mess: Deduct the cost of bonuses from the next set of bailout funds AIG is set to receive."

Yeah, but how is Congress going to demonize those "rich people" and maintain the class war by doing that?

If income taxes are taken f... (Below threshold)
maggie:

If income taxes are taken from the bonuses before
the recipient recieves them, do they get
a credit on the 90% taxation?

Forget about what's in the ... (Below threshold)
BU4691:

Forget about what's in the Constitution. As Chief Justice Hughes once said, "The Constitution is what the Supreme Court says it is."

Case closed.




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