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Does Congress Have The Authority To Take Back The AIG Bonuses ?

by @ 9:43 am on March 19, 2009. Filed under Legal, Politics, U.S. Constitution

The hyperbolic rage against the AIG bonuses has finally transformed itself into legislation:

While American International Group Inc.’s chief executive says the firm could recover millions in bonuses via voluntary means, that’s not slowing a legislative effort to recoup the money and shift the incentive-based pay structure traditionally used by financial institutions.

The House is scheduled to act Thursday on legislation (HR 1586) that would impose a 90 percent tax on bonuses given to highly paid employees not only of AIG, but of all recipients of more than $5 billion in federal bailout funds, a group expected to include about a dozen financial institutions, according to Ways and Means Chairman Charles B. Rangel , D-N.Y. Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. would likely be among the affected companies.

“I expect to see an overwhelming vote,” House Majority Leader Steny H. Hoyer , D-Md., told reporters Wednesday afternoon.

Of course you will. The question is whether Congress even has the authority to do pass legislation of this type. Several pundits — here and here for example — have argued that the move would violated several provisions of the Constitution, but the sad truth of the matter is that this Congressional mugging is, most likely, Constitutional.

Bill of Attainder and Ex Post Facto Arguments

Article I, Section 9 of the Constitution includes the following limitation on Congressional power:

No Bill of Attainder or ex post facto Law shall be passed.

A bill of attainder is generally defined as follows:

“These clauses of the Constitution are not of the broad, general nature of the Due Process Clause, but refer to rather precise legal terms which had a meaning under English law at the time the Constitution was adopted.  A bill of attainder was a legislative act that singled out one or more persons and imposed punishment on them, without benefit of trial.  Such actions were regarded as odious by the framers of the Constitution because it was the traditional role of a court, judging an individual case, to impose punishment.”  William H. Rehnquist, The Supreme Court, page 166.

Since the legislation being considered by Congress would apply to anyone who receives a bonus from any entity that received more than $ 5 billion in TARP funds and isn’t just limited to recipients of bonuses from AIG, it is likely general enough to get past any question that it is an unconstitutional Bill of Attainder.

As for the ex post facto argument, the Supreme Court decided way back in 1798 that this provision only applies to criminal laws, not civil laws such as a tax measure, so there would be no bar to the bonus tax even though it is theoretically retroactive.

Other Constitutional Arguments

As the Wall Street Journal notes, the remaining arguments against the bonus tax plan are even weaker. The Contract Clause of Article I, Section 10 only applies to the states; the Takings Clause of the 5th Amendment has never been interpreted to apply to tax laws; and, the Due Process Clause of the 5th Amendment only applies to procedural due process, which would clearly exist in this case.

Finally, a post at Wizbang has also raised an Equal Protection objection to the planned tax:

[W]e might as well mention the concept of Equal Protection, since a law taxing only AIG employees would clearly violate it.

As I noted above, the proposed legislation does not only apply to AIG employees or bonus recipients. Therefore, it’s unlikely that they could make a successful claim that they were being singled out as a class by the law. Even if they were, it’s unlikely that they would be considered a suspect class for equal protection purposes, meaning that the law would only have to pass the fairly liberal rational basis test. Most importantly, though, it’s fairly clear from the language of the Fourteenth Amendment that the Equal Protection Clause only applies to the states:

1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

So, as far as the Constitution goes at least, Congress is, sadly, within it’s authority to tax away to oblivion the AIG bonuses.

Update: Conor Clarke offers this from Harvard Law Professor Laurence Tribe:

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.

It seems to me that the bill passed by the House today fits Tribe’s criteria quite well and that, in the end, any Constitutional objections will end up being entirely academic in nature.

H/T: James Joyner

7 Responses to “Does Congress Have The Authority To Take Back The AIG Bonuses ?”

  1. [...] right, but anyone who understands the Constitution irrespective of ideology must understand that Congressional efforts to recoup the bonuses paid to AIG executives are almost certainly unconstituti…. “Bills of attainder” and “ex post facto” are two phrases well-known to [...]

  2. [...] Since Nick raised the issue of the Constitutionality of Congresses efforts to recoup the bonuses paid to AIG executives, I figured it would be worthwhile to share this post I wrote yesterday on my personal blog: [...]

  3. hacksoncode says:

    Even if it were, at some point, unconstitutional, the 16th Amendment gives Congress the power to tax incomes *however derived*. All of the parts of the Constitution people have mentioned are before the 16th Amendment, and are therefore overridden by it.

  4. [...] is unconstitutional as an ex post facto law and bill of attainder, which I disagree with for the reasons I stated yesterday, I think he pretty much hits the nail on the [...]

  5. [...] the very least, the Senate bill would go even further than the House bill does in making the Constitutional objections that I discussed earlier this week moot. It would be nearly impossible, for example, to make a Bill of Attainder objection to the [...]

  6. [...] I noted earlier this week, the Constitutional obstacles to the AIG bonus tax making it’s way through Congress [...]

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