The prevailing academic view seems to be that courts are unlikely to invalidate a confiscatory tax on bonuses received by executives at AIG and other TARP recipient companies. Paul Sracic at Youngstown State takes a different view.
Congress may have more of a problem with the Bill of Attainder provision than they are admitting. This is because the separation of powers principle that might normally argue for judicial deference may run in the other direction here.
Chief Justice Earl Warren wrote in US. v. Brown (1965) that the basic reason for a Bill of Attainder clause was to prevent “trial by legislature.” This is because “the legislative branch is not so well suited as politically independent judges and juries to the task of ruling upon the blameworthiness of, and levying appropriate punishment upon specific persons. “
Congress can always levy a tax that seems punitive to those who have to shell out the money. Legislative motive is therefore crucial to both limiting and to giving teeth to Bill of Attainder analysis. Does anyone think that it would be difficult to prove in court that the overwhelming reason that this bill was passed was to confiscate the ill-gotten gains of those AIG employees who received the bonuses? It is money that is already in their pockets. In this sense then, confiscation of property is being used as a punishment. When Congress does this, it is a Bill of Attainder.
I am sympathetic to this view, but I still think courts will be reluctant to invalidate the tax. It may be generally understood that the tax is motivated by public outrage against the issuance of these bonuses, but it could still be "difficult to prove in court that the overwhelming reason that this bill was passed was to confiscate the ill-gotten gains of those AIG employees." Courts are rightfully reluctant to evaluate legislation on the basis of stray comments made by legislators, particularly if different legislators express different opinions. Key members of Congress have already begun to distance themselves from arguments that the tax is a punitive measure. Rep. Charles Rangel, for instance, argued on Fox News Sunday this morning that the tax is really about protecting taxpayers, and not about punishing AIG execs. Whether we believe him or not, such comments will make it difficult to prove that Congress acted with an illegitimate motive, particularly given the broad deference courts have shown Congress in this area. So while I am sympathetic to the view that the tax is, in fact, an unconstitutional Bill of Attainder, I remain skeptical that the federal courts would so hold.
Related Posts (on one page):
- Epstein on AIG Bonus Tax:
- Is the AIG Bonus Tax Really a "Tax"?
- More on AIG Bonus Tax as Bill of Attainder:
- Tribe on Taxing AIG Bonuses:
- "Would a Super-Tax on AIG Bonuses Be an Unconstitutional Bill of Attainder?"
I agree with your odds. However, the one thing I disagree with is your thinking there will be a filibuster. No Senator will want to lead such an effort. Rather, the legislation will be referred to the Senate Finance Committee and never see the light of day again.
Link
Here is an article from a law professor talking about other ways that the government can stop the bonuses.....
Any thoughts on the link?
It is in the Cleveland Plain Dealer on Cleveland.com. By Candice Hoke.
But there are some other constitutional issues here with greater implications: particularly equal protection. Indeed, Congress had better hope the law falls on the equal-protection sword because otherwise the courts will have to reach other issues... like the constitutionality of a direct-tax on income of people in a particular profession.
It's hard to argue that it's not a Bill of Attainder when you have so many people, er, attaining...
I believe its part of the congressional record.
"Protecting the taxpayers", I think not! Rather protecting the congress critters.
In a WSJ interview, Mr. Tribe readily answers questions in which he dismisses virtually all of the legal approaches that could be employed to challenge the consitutionality of such legislation. (See: WSJ Interview)
Assuming, arguendo, that his analysis is correct and our courts of law would agree, I do have to wonder what meaningful limitations would be left to place checks on the power of Congress to exercise its tax powers. His answers suggest "precious few".
The root question is; are they "ill-gotten gains"? Did the company contractually agree to these bonuses? Yes. Did the employees provide service for the money? Yes. End of story. There are no ill-gotten gains. Period. The fact that the government gave money to fund AIG is irrelevant.
Thus it is plainly a Bill of Attainder and the motivations of the congress are not germane to the issue.
Congress is obviously interfering in a private contract and no amount of excuses made by saying that "stray comments" of congress don't really count (when they fully did) and that the court needs an "overwheming reason" to invalidate the tax will change the fact that this is a plain violation of Constitutional Rights.
Common sense will tell you that this is wrong and only by burying the issue in a forest of minor details can one hide the true fact that the congress is trying to punish a set of individuals.
If this gets through and is upheld by the courts what precedent will it set? I can hear it now...
"Oh, Professor, we in Congress feel that your salary is too high, and therefore no one employed in a University that receives any form of federal funding can make more than 5% above the janitors salary and therefore we will tax you to 'recover' and 'clawback' your 'ill-gotten gains' from the time of your initial employment".
How will you feel then? Hmmm?
BBB
I would feel absolutely filthy if I wrote something like that non-sarcastically.
Senator Grassley made the suggestion during an interview on WMT; it is not the sense of the Senate.
Does the fact that the measure passed by the House doesn’t single out employees at AIG and instead uses general language affecting all companies receiving more than $5 billion in federal bailout money (Bank of America Corp., Citigroup Inc., JPMorgan Chase &Co., Goldman Sachs Group Inc. and Morgan Stanley), protect the legislation from a bill of attainder attack?
I don't think an equal protection claim would also work. Very few tax statutes have been struck down under the Equal Protection Clause. For example, the Supreme Court, in NORDLINGER v. HAHN (90-1912)(1992), rejected an EP claim concerning Proposition 13 in California, which limited property taxes, even though it meant a new home buyer in Los Angeles could pay 17 times more in taxes than her neighbor who had lived in the same house for decades. The Court said:
After this, if it passes, what could possibly stop any conceivable application?
The root question is; are they "ill-gotten gains"? Did the company contractually agree to these bonuses? Yes. Did the employees provide service for the money? Yes. End of story. There are no ill-gotten gains. Period. The fact that the government gave money to fund AIG is irrelevant."
Objection. Assumes facts not in evidence. Ignores fraudulent conveyance law. Who agreed to what with whom? How do you know what services were provided? This comment requires the disclosure of the contracts themselves as well as the facts and circumstances surrounding the making. Do you want to do that?
Employees taking bonuses per their contract as a breach of the agent's loyalty duty. Does an agent really have a duty to turn down money under a contract? Doubtful.
"Assumes facts not in evidence"
You would prefer an assumption of guilt standard?
The court need only play the meme: it has been our habit to grant deference to the legislative branch and submit its acts of taxation and appropriation to a mere rational basis test. We are now confronted by legislature determined to stretch the principles of our Republic, as a consequence, it is the judgment of this court that strict scrutiny can and ought to be applied in reviewing these legislative acts.
What is the batting average on academics predicting what courts will do? I'm going to guess that it's pretty dismal. Yogi Berra said, "It's tough to make predictions, especially about the future." The academics didn't do so well in Rumsfeld v. Forum for Academic and Institutional Rights, Inc., 547 U.S. 47 (2006). They lost 8-0, which is a pretty poor reading of the court.
You make my point. If there was fraud, then let the AG indict, try and convict (if possible).
Allowing congress to pass an ex-post facto law to 'clawback' assets that have not been proven to be fraudulent in lieu of a trial is plain wrong.
BBB
The Treasury Department, and arguably the Democratic Congress, had perfect knowledge of the identity of those organizations that have received funds in excess of $5 billion and, perhaps more importantly, those that have received less. So why was $5 billion chosen as the bright line?
I suggest that a lower limit would result in a substantial increase in the number of organizations being affected — such as community and regional banks — with the effect being felt principally at the executive level.
Congress must feel politically safe targeting financial behemoths domiciled away from their home districts and constituents. But what would happen if there was no bright line — that all employees of TARP fund recipients were affected? I suspect that many Congressman would become politically and financially persona non grata at their local country and dinner clubs, for then they would have to answer to their local support and benefactors at those same clubs.
Importantly, the legislation targets only a subset of a defined group -- the overall group could be defned as "TARP recipients" -- but by creating the $5 billion bright line, the legislation is targeted at "covered TARP recipients".
Does this create any problems in the Bill of Attainder analysis?
The XVI Amendment permits an income tax. Whether or not they are "takings" requiring "just compensation" is moot since the XVI Amd. was ratified subsequent to the V Amd.
We will see. The Court would have to overturn a long line of cases (over forty years) to suddenly change their mind concerning the level of scrutiny, and stare decisis is a powerful force that will probably prevent that.
I don't think so. Congress and the Executive Branch always draw lines as to who gets benefits or receives taxes.
Nothing at all.
What you're missing is that the federal judiciary is a branch of the federal government, and as such is loathe to conclude that actions to increase the power of the federal government are unconstitutional (even though most of our federal government is blatantly unconstitutional already).
what are you assuming about the AIG bonuses?
not sure whether to assume wealth envy or ignorance as the underlying cause of your position wrt to this issue, particularly since these seem to be retention bonuses.
I must be missing a couple of pieces. What is wrong with expecting (demanding?) the federal judiciary to invalidate an unconstitutional law?
Possibly because the bill (and it is a long way from becoming law) isn't unconstitutional--just bad policy. Just because something is bad policy (or a policy preference you don't like) doesn't make it unconsti-tutional; and given Nordlinger v. Hahn (quoted above, and other cited cases) it looks like the courts will not invalidate such a tax measure.
"Wealth envy"? Haha. I don't care how the payments are labelled. think that there are sufficient facts to make a prima facie case of fraudulent transfer. The funds should be held (sort of a quasi attachment, so as to avoid dissipation or movement offshore) while the recipients are allowed to provide that the payments were for services actually performed, which is a critical factual that you assume away.
I was curious about the same thing. If Congress can pass a "tax" that has the effect of confiscating 100 percent (or more, what if the net of 90 percent Federal, plus state and city taxes and an intangibles tax as NC used to have is > 100 percent?) of income already earned, for a small group defined as this one is by the combination of several factors, all established by statute, what would prevent, say,
- a law taxing at 110 percent all doctors fees in excess of Medicare established rates?
- a law establishing an annual property tax assessment of 1.1 times the assessed value of property for all registered Democrats?
- a law taxing at 100 percent all legal fees in excess of $100,000 dollars a year, and all contingent fees?
If so, isn't that true of the janitor's salary too? After all, they're both compensation paid after the company was effectively insolvent.
(1) a 90% tax on all income paid by a certain class of payers
(2) a 90% tax on all income received in all zipcodes ending in "9"
(3) a 90% tax on all income received in states ending in "a"
(4) a 90% tax on all income received by homosexuals
(5) a 90% tax on all income received by libertarians
(6) a 90% tax on all income received by Republicans
Anywhere?
As to the merits, here the tax applies to recipients of "bonuses" (not other income) who work for companies which received TARP money (not those who did not) and ONLY those companies who received TARP money in excess of $5 Billion.
(correct me if I am wrong).
As a regulatory/fiscal policy, these distinctions are irrational, or border on irrational.
Consider three hypothetical exexcutives, Ned, Ted and Fred, each of which received a $1 Million bonus. Ned works for a company which received $6 Billion in TARP money. Ted works for a company which received $4 Billion in TARP money. Fred works for a company which received no TARP money.
What is the fiscal/regulatory justification for taxing Ned, but not Ted and Fred?
If the rationale is to tax the wealthy, then everyone should be taxed.
If the rationale is to control TARP money, then Ned and Ted should be taxed.
The bill sure starts sounding like a bill of attainder when you analyze it this way.
There seems to be so much vile nonsense being talked about these bonuses, especially by the Honorable morons who rule us. No one seems to care what the actually facts are. Juan Peron would be proud.
Government appointed AIG CEO Liddy testified -- does anybody in Congress actually listen to those they drag up there? -- that the people getting the bonuses are NOT the same people who were responsible for the losses, but were brought in after the fact from another AIG unit to clean up: “These are not the people that ran the company into the ground. . . . The people who were primarily responsible for credit default swaps that brought us to our knees -- they're gone."
The bonuses are retention, not performance, bonuses, thought necessary to entice these particular AIG people not to go elsewhere, but to stay and work at the dead end job of reducing a large ($2.6 trillion) book of derivative contracts for a company that was going to close up shop. They stayed for the required period, have reduced the pile by half, and got paid.
Am I the only one in the country who is not disturbed by this? Having paid $175 billion for the privilege of owning 80% of the gaping wound formerly known as AIG, we are supposed to cavil at paying less than a thousandth of that to some folks with a decent chance of stanching the bleeding?
The retention bonuses were provided for by contracts that the government never attempted to renegotiate; they were paid out by the CEO (Libby) that the government put in to run AIG, upon advice given to him by lawyers from AIG, the Treasury, and the White House; at the insistence of the administration officials from Treasury and the White House, they were specifically exempted from legislation restricting bonuses elsewhere; and they were known to the Treasury and Fed officials who administered the doling out of subsequent tranches of public funds to AIG.
Is there anyone in the government -- the Congress, the White House, the Treasury -- with the sense of simple honor to stand up and say "a deal is a deal"?
My question: how are we ever going to get anyone to work at reducing the second half of this pile? Promise them that afterwards they can go into the witness protection program?
(5) and (6) are viewpoint discrimination and plainly violate the First Amendment.
(2) and (3) are utterly irrational and should not withstand any type of review, even rational review
(4) depends on what standard of review you apply to homosexual discrimination laws
(1) just begs the question -- what is the "certain class" we are taking about. "People with incomes greater than $1 Millon" would certainly be upheld. "People with red hair" wouldn't.
David McCourt:
You have two serious issues: (1) you have a sense of honor and (2) you are willing to copnsider the long run, at least beyond the immediate next five minutes of demagoguery.
In modern day Washington, either would disqualify you from any involvement in governing. Sorry to say.
You'll never see this:
(x) a 90% tax on all income received by a congressman.
(1) just (begs the question -- what is the "certain class" we are taking about. "People with incomes greater than $1 Millon" would certainly be upheld. "People with red hair" wouldn't.
It doesn't beg the question, it raises the question; the first not being a fancy way of just saying the second, despite what some may think.
Ever hear of an "election"?
If the new "bonus tax bill" qualifies as a bill of attainder merely because it calls out specific persons by name, then every private bill ever passed by Congress would seem to be a bill of attainder too.
But I am surprised that you haven't tried another tack: it seems to me that any law which seeks to tax income, but is enacted AFTER the income was received, is an "ex post facto" law. I wonder if this has been tested. It would certainly pay someone to test it if he stands to lose hundreds of millions of dollars.
Thanks,
OK for (1) say the selected payer class is "operators of 'talk' radio networks"
For (2) and (3) I think you overstate the firmness of the rational basis test. Wouldn't a simple declaration by some committee chairman that the measures are being enacted under a planned "rotating burden" scheme and that a some time in te future another group would be rotated in? Why is this less of a rationale than taxing all capital gains but allowing only a fraction of capital losses as a deduction from income?
(5) is a viewpoint so I'll give you that, but (6) is an association and what does freedom of association really mean nowadays?
The real answer to this is that the courts will not stop any discriminatory taxation so long as someone somewhere articulate some sort of fig leaf of a motive. If you want to be treated fairly by Congress you had damn well stay popular; no court will save you. Perhaps long ago, but not today.
As a matter of English history, one key component of attainder was the confiscation of the attainted's property -- sometimes, in the case of a powerful nobleman with vast estates, this might actually have been the motive behind the attainder -- so there is ample reason for not restricting bills of attainder to some artificial line of "criminal" punishment shy of confiscation. Besides, our goverment doesn't do drawing and quartering anymore -- give Obama, Rangel, et al. some time.
I also believe AIG employees should be investigated to determine who breached duties to their employer or engaged in other unlawful conduct, perhaps criminal conduct. Given the demands on and limitations of government lawyers in current circumstances (unraveling the botched "war on terror," addressing financial crises, etc.), a proper course could be to engage private lawyers in contingent fee engagements (a portion of what they recover from evildoers). Those who stiff-armed auditors, arranged unconscionably risky bets to take advantage of warped compensation arrangements, misrepresented those risks, etc. should be hunted, apprehended, shamed, and broken.
$ infusion?
Seems to me if the goal is a $ restitution that accomplishes that end why rewrite tax code?
Or are we talking politics?
I think the entire imbroglio has been misrepresented, perhaps unintentionally, in the media.
And, no (unfortunately), I wasn't on the bonus list myself.
Although I do not know where the line should be drawn, certainly (Gee, with lawyers I should say It is Clear That) at some point conficatory taxes are no longer taxes, but instead are fines. I would think that any "tax" on income that exceeds the income is a fine.
Is Amendment VIII now implicated in the analysis?
Over the air licenses of public airwaves could be set to be a percentage of the operators' income, or would that be a "bill of attainder" too?
Unfortunately, you don't have to be on the AIG bonus list to be a target of the current mob fury the government is exploiting.
In an attempt to disguise the attainder of the AIG "criminals" -- who Obama publicly likened to suicide bombers this week -- the House attainder bill has now broadened the class of Kulaks to include anyone whose family income exceeds $250,000, who works in any capacity for any financial institution which owes the TARP more than $5 billion, and who received a bonus since January 1, 2009. If you, like tens of thousands of Americans who had nothing to do with mortgages, derivatives or the current crisis, work for a large Americab financial institution -- even one that didn't need or want TARP money - then you too should report to the rail depot for a little trip on the cattle car.
Even people with relatively middle class jobs in the securities industry, whose bonuses, which are typically paid in January for the prior year, and are typically the bulk of their compensation, will find that they now owe hundreds of thousands of dollars in unexpected taxes on money they received months ago, for work they perfomed in 2008.
i read that and don't see where there is a need/role for Congress to pass a new law with retroactive effect. what are you trying to say that we seem to be missing?
But how foolish would it be for any of us to seek a legislative remedy when the simple $ for $ is easy.
Unless were attempting to make some "point"?
The obvious point by Congress being "political"
The bonuses have been paid, and they were not performance bonuses, but retention bonuses, such as those paid by a receiver to some employees of an insolvent institution, to help him out. But these are just facts, and of no relevance in the present climate.
over the air licenses of "public airwaves" are leased (or auctioned or whatever) at a rate agreed upon by the operators. iow, it is a contract entered into by both parties.
not the same as licensing 'public airwaves' for x dollars and then passing a law taxing the revenues retroactively at 90% rate.
why don't we also retroactively tax all people using 'public roadways' so we can recoup the money needed for stimulating the economy.
Is that really really any different than, say, eliminating he deductibility of interest on balances already accrued? Reagan did that way back in he 80's and effectively reatroactively taxed credit card and student loan interest from transactions that occurred YEARS prior.
This law, on the other hand, is making changes to the 2009 tax year code during 2009. Surely that's pretty common.
I know of no category of laws Congress is authorized to pass that require people to pay money to the government in which this fits other than a civil penalty. It's not a criminal penalty, it's not a tax, it's not an administrative forfeiture, and so on.
When Congress passes civil penalties that are just due without any procedure, that's a Bill of Pains and Penalties. That's supposed to be unconstitutional.
Nobody, as far as I know, has ever even tried to claim the primary purpose of the bill is to raise revenue. There is no credible alternative argument other than it's to penalize those seen to be unjustly enriched.
Where does that requirement come from? Isn't tax law routinely written as an implement of public policy?
I for one have been listening to which of my associates rail on the AIG bonuses, marking each one in my mind as clueless or daft. When this news first broke, it took until the middle of the second page of the WSJ article to get along to mentioning that these were retention payments. At which point my attitude became firmly in support of AIG. Look, these sorts of payments are vanilla normal. AIG is a distressed firm with a multi-billion dollar payroll. 165M in retention payments? That's miserly. Skilled talent jumps from the sinking ship.
On top of which, the bonus payments represent 0.1% of the money AIG has received. Talk about missing the forest for the trees.
Kudos to any politician with the guts to speak truth to this latest round of populism. Shame on all the sycophants and sophists without mind to see through their selfish indignation.
David Schwartz,
If this is a tax, its primary purpose must be to raise revenue. Nobody can argue that with a straight face, so it's not a tax.
I don't think that's quite right. We have lots of taxes whose alleged primary purpose is not to raise revenue but to discourage particular behavior. The various "sin taxes" (on alcohol, tobacco, &c.) are the obvious examples. It's true that these do also raise revenue, and that many states are now in the peculiar position in having to hope that the behavior they wanted to tax into oblivion keeps going, because they really need the money.
What's peculiar about this particular tax is the retroactivity. Here the point can't possibly be to discourage behavior, because the behavior, whatever it might have been, already happened. And the point can't be just to recoup the money that Sen. Dodd (or the Treasury, which made him do it, or whoever made the Treasury make him do it) lost by inserting that last-minute amendment in the bill that no one (including its authors) now admits to having read — because you could do that, as someone said upthread, just by deducting the bonus total from the disbursed funds.
So, yeah, the only remaining motive is to punish the damn bandits. Or, anyway, the nearest group of people (apart from Congress itself) who can be made to look like the damn bandits. It looks and waddles and quacks like a bill of attainder from here, but IANAL, nor do I even play one in the internet.
The outrage being reported, though, amazes me. I think people must be being dazzled by all the zeroes. The bonuses are a tenth of a percent of what went to AIG. In ordinary times people might wonder about the other 99.9%; but now, all they seem to see is that $150M or so is a lot of money. Perhaps it used to be.
Well, it would be nice if that was at least a purpose. I'm sure we've already spent 165 million dinkering about the issue.
No question the War on Terror has been botched. Why, the United States has been attacked an uncountable number of times since 9/11/2001. On the other hand Obama is working real hard at "unraveling" those safety features of his predecessor's armamentarium and of course we'll be safer as a result.
On the other other hand, maybe I need to stand up because your comment was pure sarcasum and it went over my head. Well done if it's the latter.
"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; ..."
It of course also comes from the definition of a "tax". What makes a bill a tax is if its primary purpose is to raise revenue. That's what distinguishes it from a forfeiture, a seizure, a criminal penalty, or any of the other various ways laws can make you pay the government money.
The authority for protectionist tariffs, for example, comes not from the taxing clause but from the "regulate Commerce with Foreign nations" clause.
If I had the patience, I'd dig up the S.C. citations.
It's funny that the debate over bills of attainder rages or -- depending on how far down the thread you might be -- curdles on, only blog-inches from a review of a re-visitation of Kelo v. City of New London. It seems to help to suggest, as Tribe and others have commented, that the weight of opinion is right and the judicial benefit of a dispute would go to sustaining the law.
But in an immediate future that seems to offer demands for all kinds of unpalatable deals, you really have to wonder whether anyone should be aking this kind of a test drive on Article 1, section 9 of the American constitution. It's a bit like breaking a deal with hostage takers, isn't it, when you know you'll probably find another kidnapping right around the corner?
It is likely that the bill, as a matter of normative law, is unconstitutional.
On the other hand, the courts are unlikely to hold the bill is unconstitutional because courts generally accord federal laws a presumption of constitutionality. Courts do not like to invalidate federal laws as unconstitutional unless the unconstitutionality is extremely clear and unless the politics supports this view. Here, the unconstitutionality is not immediately obvious on the one hand, and there is no constituency supporting AIG employees on the other. Therefore, although courts would uphold a confiscatory tax, the tax would still be unconstitutional.
Is the fact that it is a small percentage truly relevant? It's still a lot of money. And isn't a retention bonus supposed to go to someone that actually stays, not to some that have already left?
I have never in my life gotten a bonus even though I did a bad job. I'm clearly in the wrong field.
It of course also comes from the definition of a "tax". What makes a bill a tax is if its primary purpose is to raise revenue. That's what distinguishes it from a forfeiture, a seizure, a criminal penalty, or any of the other various ways laws can make you pay the government money.
If you are right, then there are a lot of taxes not properly labeled taxes, even though they aren't forfeitures, seizures, criminal penalties, or any of the other things people would normally associate with those procedures.
If you were, for example, to ask someone advocating a higher tobacco tax (or, for that matter defending the current one) what the optimal level of smoking is, s/he would of course say "zero." That means that the tobacco tax is not, at least nominally, meant to raise revenue at all. No (legal) smokers, no tax revenue; therefore whatever amount is added to go to various gov'ts isn't a "tax." I mean, they don't want you to smoke, right?
This is maybe not such a good example, because, as I said above, various state gov'ts are really in a bind about such taxes, not wanting to encourage the behavior, but still wanting the revenue.
David, what would you call a surcharge on a purchase that was proportional to the size of the purchase, wasn't specially meant to generate revenue, and would be supported whether the gov't actually got the money or not, just because the activity — I won't say "taxed," but "surcharged" — in this way was something people wanted discouraged? It's not a forfeiture or a lien or seizure or even a fine. And you won't call it a tax, because getting the money is less important to the people passing such bills than removing it from the people spending it, as they think, unworthily, whether it be on yachts or on cigarettes. So what is it?
1. this bill treats differently the income of a lawyer employed in house at a bank and a lawyer at an outside firm doing identical work for the bank.
2. it also gives a married, 2-banker couple a $250K maximum AGI(adjusted gross income) before the 90% tax applies, the same as a single banker or married banker with a spouse in an unrelated job earning less than $125K, so, for many people the entire value of the spouse's work for the year will be wiped out. yes, a small marriage penalty may not be a consistutional issue, but 100% wipeout of a spouse's marginal earnings?
3. The bill also applies equally to the wages of someone who received a TARP bonus in January and then quits the bank to become a professor, write a book, etc. vs. someone who stays the bank -- if you received a bonus + salary of over $250K before quitting, you lose anything else you earn during the year.
4. Due to the AGI limit, anyone who received a bonus at a TARP bank and sells stock/house/other assets at a gain in 2009 to help pay the tax will be taxed at 90% on the full value of the asset sale less than the bonus amount. this in particular will crush people who've already spent bonus money, because they cannot pay the tax liability by taking another job or taking capital gains. Is it 'equal protection' to tax a TARP banker's unrelated capital gains higher than anyone else's capital gains?
The structure of a retention bonus/contract is as follows: company agrees to pay you lump sum X if you agree to continue working for duration Y. I've seen "Y"s as short as a few weeks. Its not unusual to include a renewal clause. i.e., for each Y period your remain you will receive X.
Thus, it is hardly remarkable that some people who received retention payments sometime during 2008 have now left, but most recipients are still working at AIG. This is precisely what I'd expect.
These are not performance bonuses--you are being very narrow-minded about the meaning of the word bonus--but if I may broach the subject of pay-for-performance. Wall Street jobs are structured with very low base-pay. If your individual performance was abominable, you'd just get your base-pay, but the continuum of performance is quite wide. Bad performance can still earn a bonus (albeit a smaller one). The base-pay is that low. That's just the dynamics of the arrangement. If it were otherwise, no one would accept the base-rate being set so low.
You're basically right, but this is a question of the standard of review. A rational-basis review would make most taxes in the right. You only need a vague public purpose like "we expect to raise revenue more effectively this way" or "this will discourage smoking".
The situation would change under strict-scrutiny. A "sin tax" might withstand strict-scrutiny's narrowly-tailored to meeting a compelling state-interest, but would an "AIG" tax? The tax is narrowly tailored (constitutional) but the tailoring is achieve an illegitimate purpose (unconstitutional).
It is a forfeiture.
Perhaps you can argue it's a fee if it's calibrated to compensate for impact elsewhere. That is, if you smoke a cigarette, you have to pay the government the costs of the increased health care you are statistically expected to required. I'd consider that a stretch, but it might work.
Why do you say it's not a forfeiture?
The bonus bill also has a huge equal protection problem. The same bonus is taxable if it comes from a company that got bailout money and not taxable if it came from a company that doesn't. A person who works for a bailed-out insurance company is identically situated to one who works for an insurance company that's not bailed out. The equal-protection problem is the same as, say, having different tax rates for lawyers than for everyone else.
The AIG bonuses were paid to individuals with a de facto contract with the US government.
This talk of a 90% tax strikes me as a retroactive modification to said contract, without the consent of one party.
If nothing else, this strikes me as "bad faith".
Does the government indeed have authority to retroactively amend contracts with citizens?
What am I missing?
I've noticed the same thing. Also, do keep in mind that for many of the employees of AIG based in NY and NJ, the tax will come to 100+%--after factoring in the other taxes owed on the money.
If I am not mistaken, Republicans have previously attacked the Democrats for protecting the bonuses in the bailout bill. Now, they're attacking Democrats for trying to retroactively cover up their mistakes with what appears to be an unconstitutional bill of attainder. In other words, the Republicans first chided Democrats for spilling the milk, and then for trying to scoop the milk back into the saucer rather than getting a sponge.
The key here is that two actions were taken: the protection of bonuses, and the newly proposed taxation. Republicans are separately criticizing each of these, rather than ignoring one for the other.
David Schwartz:
IANAL, but did Congress justify "sin taxes" with revenue-gathering as their primary purpose? Section 8 of Article I of the Constitution says that Congress may "lay and collect taxes...to pay the debts and provide for the common defense and general welfare of the United States." Nowhere is "raising revenue" mentioned.
I was thinking along the same lines. Here a company was paid a substantial sum of money by the government. With certain conditions WHICH EXPRESSLY PERMITTED PAYING THESE BONUSES.
The company took the money and did what it was expressly permitted to do under the laws and the terms of the grant.
The people who worked there did so in reliance on this state of affairs, not to mention their contract. They could have walked, but didn't.
Then, after the fact, because of some demagoguery, the govt. decides to confiscate these bonuses. With a tax specific aimed at these workers -- workers at a non-TARP-receiving firm are exempt from the tax.
If the govt. were a private party, you would have serious issues of breach of contract and promissory estoppel.
But of course, the morons in Congress have no concept of honoring one's promise (even if you made a lousy deal), or even worrying that in the next situations down the road, people might trust the govt. alot less. (Hence the rush by many banks to return TARP money as fast as possible.)
No one is defending the AIG bonuses. What they are attacking is the Democrats' short-sighted destruction of any reserve of trust anyone has in the good faith of the U.S.
If this bill passes and is upheld, then the moral of the story is simple: if your company is in trouble, and is about to take govt. money, bail out as soon as you can. Otherwise you could be royally screwed.
Is that a result we want? Would that promote a stable economic recovery?
Actually yes, yes it is. I do indeed want private business, as well as voters far and wide, to feel the urge to claw their own eyes out when they hear things like bailout and public-private partnership and government economic recovery plan. Five years from now, I'd like those phrases to evoke the same gut emotions as ethnic cleansing or separate but equal.
Would that promote a stable economic recovery?
Yep. The sooner people get it quite clear in their heads that cutting a deal with government is no different than any other Faustian deal with the Devil, the sooner their vision will clear of the miasma of evil delusions 25 years of prosperity have allowed to accumulate (and which demagogues, mostly Democratic, have encouraged), and the sooner they'll start making the sensible, grounded, practical decisions that will bring the country back to its successful roots.
Sometimes things have to hurt for people to learn valuable lessons. Barack Oprompta may do for the post-modern Democrats what Joe Stalin did for international communism, and from the resulting implosion we may get the Democratic party of my grandfather, a worthy American institution, back. Go Barry! Full speed over the cliff!
Would the Republican party exist in its current form without the benefits of government contracts?
Or perhaps the moral would be....if your company is so poorly run as to be possibly headed for massive failure your incentive should be to get out rather than being incentived to double down. And perhaps enough "top talent" leaving early would act as a warning to management that Hey, destroying the world economy just might not be a smart move!
I am, and you should too. Search back to my prior two posts explaining why.
I don't see how. If you voluntarily leave a senior management position, the company doesn't owe you a bonus. Bonuses are only for employees who stay on and, in pure theory, are supposed to be based on some kind of objective metric of performance.
I've seen some debate in the past about whether executive compensation is a way of extracting money from shareholders. I would say it's time to revive that debate, especially when applied to large financial institutions. If AIG management were serious about getting the firm back on solid footing, they would readily agree to the following: pay back all existing bonuses and instead take options dated 5 years from today on the firm that cannot be exercised early. As the saying goes, the captain should be the last man off of a sinking ship.
If you stay on, you'll be working at a dead end company. You'll have no opportunity for promotion and you'll be unemployed once the company finally dies, at which point you'll be hunting for jobs, in this economy, with "failed company" on your resume.
That's why you'll want to leave. In the absence of bonuses, staying is a bad idea.
in pure theory, are supposed to be based on some kind of objective metric of performance.
No. Retention bonuses are not based on performance.
The bonuses have been paid, and they were not performance bonuses, but retention bonuses, such as those paid by a receiver to some employees of an insolvent institution, to help him out. But these are just facts, and of no relevance in the present climate."
Objection renewed. Assumes facts not in evidence. Where do you get yours. How do you know these things to be true?
After the company gets government funding, the courts and apparently many commenters in here see no problem with Congress saying that "any employee that had more than $5,000 in income from a company that received funding from government program ENIGMA is taxed on that income at 90%."
You can't win in this situation. Notice that if the government money arrives in September and you left in August, you'll still lose all your income from January to August. And maybe leaving is the wrong thing because Congress writes the law to say "any employee that had more than $5,000 in income from a company and is no longer employed there as of December 31."
Dear conservatives: please realize these tricks would be a lot harder to do with a carbon tax.
Is this a joke? Did I miss the meme going around where someone jumps into a topic that has been discussed for several days and claims to not know the basic subject matter?
If you simply do not believe that AIG had a retention program, you can start with Libby's letter to Geithner from the previous weekend.
Letter to Geithner
You say the facts I recite about the bonuses are not "in evidence."
Funny enough, they are about the only things in this carnival that are in evidence, the evidence being the testimony under oath of the government's own appointed post-crash CEO of AIG, Mr. Liddy. Liddy testified to the Congress that will not listen, only pontificate, that the bonuses were retention, not performance, bonuses, that they had already been earned and paid, and that the recipients were not in the CDS unit of AIG which brought it low, but were those from another unit of FP who had been brought over to clean up. “These are not the people that ran the company into the ground. . . . The people who were primarily responsible for credit default swaps that brought us to our knees — they're gone."
Maybe Liddy is lying — those that appointed him sure have been — but that's for you to demonstrate. Liddy is no politician, but a man coaxed out of retirment, after a distinguished career in insurance (not at AIG), to take over, at $1/year, and try to patch up this train wreck. For his pains he is publicly abused by know-nothing Congressmen as if were a criminal. I for one take him at his word; you are free to rely upon the statements of such truth tellers as Dodd, Rangel, Geithner, Summers, Emanuel and Obama.
Where do you and the pitch-fork crowd get your facts?
You omitted my mention of options as an incentive for employees to stay on and revitalize the company. Giving cash bonuses not linked to performance simply encourages managers to make a half-hearted attempt to do their jobs while constantly looking for another job on the side.
I should point out when Wall Street bailed out Long Term Capital Management (with strong nudging from the NY Fed), it forced all of the partners to sign a contract agreeing to stay on for a fixed period of time to help unwind the firm's positions in exchange for a base salary that is meager by Wall Street standards. That's how the private sector does bail-outs.
I agree with some that this is being blown a bit out of proportion. The bonuses are small compared to the size of the bail-out after all. On the other hand, AIG's managers seem to think they are indispensable and have the world economy by the balls. As long as that view is validated, there's really no limit to how much money they can demand as "retention bonuses."
Options will not work as an incentive when the company is insolvent and the stated intention is to liquidate it when its book of derivative contracts are finally cleared up.
Of course, cash won't work very well now either, as the government has made it plain that it is not above stealing back by brute fiat what it agrees to pay out by contract. How big a premium does an untrustworthy, double-dealing employer have to pay to lure the best employees away from reliable deals with honest employers?
Your solicitude about the lack of optimum incentivizing by retention bonuses is touching, but the government's retroactive "tax the bonuses to death" plan does more to encourage bad incentives than anything we've seen in decades.
Since commissions ($$ based on a piece of the return from individual transactions) are not regarded as bonuses, the tax plan will shift compensation toward an "eat what you kill" model, where employees think only about the immediate transaction and payout, rather than toward a Goldman-style bonus model, where extra $$ is based on how well the firm and the unit did, and what you did to help. This moves the incentives in precisely the wrong direction. Second, bonuses will disappear, replaced by larger regular salaries, based on an estimate of future performance, rather than an actual reckoning of past value. This again, moves incentives in exactly the wrong direction.
I'm not entirely to which the extent this is really true at AIG, but the explanation for this I heard (which seems pretty plausible) is that certain departments of AIG are structured much more like law firms and investment banks. A number of these senior executives had pre-existing clients that they carried with them from company to company.
These contracts were written well in advance of the government buyout, and probably in advance of the true knowledge of the extent of the crash, in those circumstances it makes perfect sense that an executive who brings in revenue beyond what he personally works on and can take the revenue with him if he leaves might negotiate yearly "bonuses" for staying on with the company.
Yeah, and Vikram Pandit (appointed by the free market!) testified in front of congress that he received $1 million in compensation in 2008 when he actually received at least $10 million.
No. Retention payments are common and well understood. No one gives stock-options as a retention payment--especially at a distressed firm. First, the time-periods are different. Retention plans are structured on the order of months; stock-options usually vest more slowly. Retention payments keep employees on staff as a firm winds-down. There is no future to make the options valuable. If you do a half-hearted job, your retention contract will not be renewed.
Its fully expected that the employee will be moving on at the end of the retention period. So yes, they are looking for another job, but they are contractually bound to keep doing their old one for a period of time. The retention payment ensures that they cannot make more money by leaving. People getting retention pay DO want to stay on and DO work hard to retain their status.
I'm just pointing out that a person doesn't has to be truthful while testifying in front of congress these days.
I guess I'm supposed to ask you for a spare pitch-fork now, huh?
Congressional clawbacks are a way to avoid pitchforks. You know, actual sharp, pointy things. There's a massive wave of populist rage that is building and that rarely leads to anything good.
Rage...against the AIG bonuses, or Congress' incompetence in handling the bailout bill and the fallout from it? Remember, 50 protesters at the anti-AIG bonus protest (>2x that if you count the media people covering the protest), more than 4,000 at the Orlando tea party.
Yes? Populist rage is often misdirected, depending on your point of view. The people that went on the AIG bus tour and read letters of thanks to the AIG executives -- at the AIG executive's houses -- that gave back the bonuses is populism. Creepy, as populism often is, but it wasn't the pitchfork type.
The Santelli-sparked populist revolution (CBOEWHEEEEE) is another vector of populism.
My larger point is we want to avoid torches and pitchforks. It will lead to some nasty sausage making, but the alternative is much worse (check the lithographs from the 1870s).
By describing a place, it declines to identify a specific individual. By describing Federal monies, it makes the tax in the fiscal interest of the Government. And it's an open decree of outlawry, confiscating even the necessities of life.
Then again, perhaps the AIG mess proves that the rule of law is an experiment that has failed.
The above may violate the Due Process and/or Equal Protection clauses, but it is not a bill of attainder. It may be unfair, but its unfairness is not the sort of thing the Bill of Attainder clause prohibits. The Bill of Attainder clause does not prohibit excessive or disproportionately borne taxes. It prohibits actions of a sort that involve a legislative guilt and a punishment for that guilt.
If Cogress had added
"Whereas, John Q. Smith of 1030 West Addison Street, Chicago, IL has abused the student loan process...."
That might well make it a bill of attaineder, there would be a legislative finding that a person committed wrong-doing.
Rick Santelli does not report from the floor of the CBOE; he reports from the CBOT (which is now part of the CME). But, hey, these are just more of those pesky facts. Don't let it stop you.
Or another moral: If your company is in trouble, and is about to take gov't money, bail out as soon as you can. Unless, of course, you are paid merely middle class wages, in which you are screwed no matter what you do.
Example: When the republican congress bailed out Detroit and demanded that the contracts that had been negotiated between labor and management be abrogated, and wages should be lowered to the level of the foreign competition.
So what should the assembly line worker do? Quit? or put up with the new lower wages? Why was no one here upset at that?
HMM: Law Professor Who Advised Obama Says House AIG Bill May Be Unconstitutional. “I just got off the phone with Harvard professor Laurence Tribe, who advised Obama during the campaign, and he says he’s leaning towards seeing the new House bill to tax back all the AIG bonuses as unconstitutional.”
If you are in a company about to go into bankruptcy, you can basically assume that all sorts of contracts are going to be abrogated — those of your creditors and those of your employees. That's what bankruptcy is for — spreading the losses around and making sure the bystanders aren't badly hurt when your business implodes.
The line worker in Detroit last bailout was facing either a bailout in which his contract would be rewritten for the worse, a bankruptcy in which his contract would almost certainly be rewritten yet more unfavorably, or unemployment. The fact that a lot of Detroit line workers likely still have the jobs they would have lost but for the last bailout suggests that the workers could've done worse. It's not as though the public has been eagerly snapping up their wares since.
The difference here, of course, is that Congress, as is its wont, passed a piece of legislation without reading it, apparently not even the Senator whose last-minute amendment guaranteed that such contracts couldn't be modified retroactively. So the current plan is to modify the guarantee, by allowing the money to be paid, but then taxing it back again.
Never mind for the moment whether that's constitutional. It's not frickin' dignified. It's a fiddle on top of a fiddle, one that if it passes will ensure full employment for a handful of NY accountants, but otherwise will only make a tiny trickle of the intended "stimulus" hit the street a little later.
I don't know wht Sen. Dodd doesn't just say he made a $164M mistake and be done with it. It's not like the Senate is going to hold him to Sen. Grassley's Japanese ethic or anything.
I think a strong argument could be made that the recipients of AIG bonuses are not in fact being punished because of a past affirmative action of theirs. This is not to say that I am comfortable with this legislation. I find all legislation that comes laden with backward applicability to be personally repugnant, but that is not the same as whether it is Constitutionality legitimate. This legislation is an attempt to redress a wrong committed by a corporate actor, and not its employees. The wrong being using Federal monies which were extended to AIG in an effort to keep it from defaulting on its contractual agreements, feeling the full force of liability exposure for its past lousy business decisions, because its breadth and reach across the whole economy was so great, that its failure would likely result in an unacceptable decline in the Nation's economy, and in the interests of providing for the general Welfare of the United States, needed to be avoided. AIG misused the public's largesse on its behalf by disbursing part of the appropriation in a manner, although not expressly prohibited, was antithetical to the legislation's intent. The salient point here being, the actual behavior that Congress felt was wrongful: the bonus checks being disbursed, was not prohibited, and if it had been, then it would have been a Bill of Attainder, so "even though it may bear harshly upon one affected", the high tax rate applied to the bonuses is not by definition, a punishment being meted out to the recipients.
One final observation; as one who believes the conservative/liberal designation is a false dichotomy, that any linear model of political viewpoints is condensed down into a distorted mapping which has no utility other than perpetuating and further embedding the status quo, and that this should properly be viewed as a threat to The People's liberty; I am greatly amused by the polarity shift that occurred since the Warren Court's Flemming v. Nestor, plus the subsequent United States v. Brown, 381 U.S. 437 (1965) (see Justice White dissenting), and the relative views expressed presently about the AIG bonuses. In Flemming, it was a 5-4 "conservative" majority still holding sway as the Warren Court began to find its stride, and in Brown, it was a 5-4 fading "conservative" Warren Court minority complaining about the overturning of settled precedent, while in both instances, it was the "liberal" wing of the Warren Court holding that the contested legislative acts were unconstitutional bills of attainder. The two-party system continues on with its pirouetting descent into the fetid pit of moral relevancy, not motivated by concern for the Nation's health, but instead by a base desire for party dominance.
The act which Congress found to be so repugnant to its past legislative intent that redress for the wrong was necessary, resulting in the AIG bonus tax legislation, is not in fact the receiving of the bonuses. It is instead the act of disbursing the bonus checks, and that action has not been prohibited. The bad actor here is the corporate person as a totality, not its employees individually.
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