Even if courts are unwilling to strike down a 90 percent tax on bonuses paid to AIG executives as a unconstitutional Bill of Attainder, might the provision be vulnerable on other grounds? As written, the provision would seem to present Equal Protection and ex post facto issues — though such arguments might well be losers in court. I am also wondering whether the tax could run afoul of the constitutional limits on the spending power.
There are not too many judicially enforceable limitations on the spending power. One of the few is that Congress must impose conditions on the receipt of federal funds "unambiguously." This requirement ensures that the recipient of federal funds has, in fact, consented to the conditions when accepting the federal money, and prevents the federal government from altering the terms of the deal after the fact. Congress may impose new conditions going forward, but it may not impose new conditions on federal grants after the fact or interpret ambiguous language in order to impose limitations that were not clear to the recipient up front.
In this case, there is no question that the tax on bonuses was imposed after the fact. So the question would be whether the tax can be viewed as a condition placed on the receipt of federal funds. While not put forward as a condition, the tax would seem to operate that way. The tax would explicitly apply only to those who receive federal TARP funds. So, in effect, the tax is a condition on the receipt of federal money: If you take TARP money, you cannot reward executives with bonuses that the federal government deems to be exorbitant. If Congress could not explicitly impose such a condition after the TARP money went out, why should Congress be able to achieve the same end by labeling the condition a "tax" on bonuses paid by fund recipients?
Most of the relevant cases in this area involve grants to state governments (see, e.g., Pennhurst, Dole, Va. Dept. of Education v. Riley), but it is not clear to me why the principle should not carry over to the private context. Insofar as Congress is using the spending power to regulate (or punish) behavior, it seems to me that this restriction should apply. Congress may be free to tax all exorbitant bonuses paid by financial firms, and it is free to limit the payment of such bonuses by future recipients of federal funds, but why should Congress be able to selectively "tax" bonuses paid by TARP recipients after the fact.
Another potential difficulty would be that the individual challenging the tax would be a bonus recipient, and not a direct recipient of federal TARP funds. Again, however, I am not sure why this should make a principled difference. (Whether a court would ever accept this argument is another matter entirely.)
But it doesn't seem that Congress is using the spending power to regulate/punish behavior. Isn't the reason that the principal shouldn't carry over to the private context that the goverment has no other means other than the spending power to regulate the states?
Here, they're not using the spending power as a reason to entice individuals to do things they can't make them do, they're punishing people for supposed crimes by taxing them.
ShelbyC, when it gets to your, the government will not be calling it punishment. That would invoke the Bill of Attainder Clause.
Correct, and I think it is a Bill of Attainder. I have a tough time seeing any spending clause problems, though.
I believe there is caselaw that says taxes are not punishment for purposes of a bill of attainder... taxes can always be raised retroactively, even just for one class of people. But is there a point where a tax does become punishment? Look at the rate of the tax (90%... speaks for itself), against whom is it imposed, and for what reason - while such a tax is rare I think it could be found to be punitive. But I've always said that it shouldn't take a criminal conviction to invoke the protections of the 8th Amendment (e.g. pretrial detainees have no 8th Amendment right against cruel and unusual punishment b/c they are not yet convicted, but they've said due process covers it... fine... but why shouldn't the 8th amendment cover it?).
The problem is that we have been led to believe that companies like AIG are "too big to fail." No, they are not. We USED to intentionally break up companies that got so big - and we survived... even benefitted. No company should be deemed to be so big that it can hold us hostage. We've told AIG that we'll keep giving them money because if they go bankrupt, we'll all suffer immensely and the economy will tank. Why shouldn't AIG take advantage of that and buy solid gold toilet seats with the taxpayer's payoff money? We've declared them to be holding our economy for ransom (when they're not), and we've unilaterally decided to pay them a ransom. That being the case, they should get to enjoy it. Free money. We'd never expect a kidnapper to use ransom money in an altruistic way.
We should let AIG fail, and other companies will snatch up any viable pieces that are left over for pennies on the dollar. Whatever happened to capitalism? And i'm not blaming Obama... the Republicans want to give them the same amount of money, just without ANY limitations/strings/conditions/whatever you want to call it.
And if we are going to give them money, why are we not buying an interest in the company? We = the taxpayers = the government? Because that's "nationalism" aka "socialism"? No it's not! The government is not coming in with armed forces and declaring AIG is now the property of the U.S. Government. We're paying for it. Except we're paying a ransom and getting nothing in return. AIG will ultimately fail anyway, which is the big irony here. We're just postponing it to make us feel better.
This country is so over... My prediction: By 2010 America will collapse. The federal government will be so bankrupt, the U.S. dollar so inflated and valueless, that all the states will in effect leave the union and become independent countries. It will be a "quiet collapse" (that will be the catchphrase). No real violence or anything... just no more federal government. Washington DC will cease to exist, because without any money it has no power. And I blame this partly on Bush, not Obama - the wheels of collapse were already in motion by the time Obama took office. It's not Obama's fault, but it will happen on his watch, which is most unfortunate. Racists will blame the collapse of America on the first black president ("America was fine with white leaders, but as soon as we let a black guy run things the whole country collapses."). Not fair. It's like giving George HW Bush sole credit for the collapse of the soviet union, which happened on his watch. There are a lot of people who deserve the blame for this, mostly in the financial industry, advertising industry, and Congress.
Is a single person's "general Welfare" "the general Welfare of the United States? Are 2? Are 100? Are 1 million? How many single "general Welfares" does it take to be the "general Welfare of the United States"?
If the "general Welfare" clause is so contrued, can my debts be properly paid by the federal government or does that phrase ONLY apply to the debts encumbered by the federal government? But if only federal government debts are encumbered under this clause, why is it that "general Welfare" clause is different?
I suspect most folks haven't studied this properly to see that the expenditure must be "national" in character and for the "general Welfare" of the body-politic, the United States. Nothing in the Constitution grants power to spend whilly nilly on everything.
The limitations are as narrow as can be. Those who are Hamiltonian see the power as unlimited.
Tiochfaidh ar la!
I assume you are raising a standing argument here. Assuming the argument is correct on the merits, I would think standing is not an issue:
a) the tax itself is directly on these recipients. If the tax is unconstitutional, then they are directly harmed by its imposition. Hard to see why standing does nto apply.
b) This case is relatively easy because the TARP law expressly provided for these payments. This is beyond a matter of OMISSION of a term from the condition of the grant, it is the COMISSION of an express reversal of a term.
The original grant terms expressly allowed these bonus payments -- the recipients were the intended beneficiaries. In my mind, this is the equivalent of third-party beneficiaries of a contract, who do have standing to sue for breach to the extent a breach harms them.
Though the Contracts Clause only applies to states, some Supreme Court cases impose substantive constitutional constraints on the federal government's ability to get out of its contractual obligations. The pluarlity in United States v. Winstar, 518 U.S. 839 (1996), for example, explained: "Although the Contract Clause has no application to acts of the United States, it is clear that the National Government has some capacity to make agreements binding future Congresses by creating vested rights...."
As I understand it, shareholders have essentially a principal/agent relationship with corporate officers; this relationship is largely contractual. That being so, if this sort of tax were motivated by outrage that the bonuses were being paid with government money --- outrage, in effect, that the government-as-shareholder had struck an improvident bargain --- I wonder if the government is effectively trying to legislate its way out of a contract.
Me.
Second, how "after the fact" is this tax? It applies to the current taxable year, 2009, and will practically affect all bonus recipients at TARP firms in 2010 (when they receive their W2s and file their taxes). And as SCOTUS has held with respect to retroactive tax legislation (see Carlton), individuals have no "rights" in the Internal Revenue Code. The success of the arg't in the post, it seems to me, depends on getting a court to recognize that this is not, in reality, a "tax" but something (like a "condition") masquerading as a tax. That seems difficult.
I think there are good arguments for the proposed confiscatory rate as being a Bill of Attainder — "punishment" and all that.
I don't think ex post facto will apply to those bonuses paid this month . . . .
One needs to separate "withholding," with which most of us are familiar, from tax law changes, filing requirements, forms, etc.
Yes, money may have been withheld at the rate that was in effect for the pay period in which a bonus was paid. But that was the rate on the Withholding Table which may or may not, in my opinion, be the same as the rate that WILL BE in effect, later, when these taxpayers file their 2009 returns.
We expect them to be the same but, occasionally, we get to see how they are independent — the Withholding Tables can be changed independently of the Tax Rules and Rates.
Remember late 2008 . . . . Congress was in a hurry to do something about AMT to meet the IRS deadline for forms and regs long after most taxpayers had earned much of their 2008 income.
No, those companies can reward executives with as much pay as you like. Whether or not Congress can tax that at some exorbitant rate is irrelevant to whether the company has the freedom to set the pay.
Not exactly. The tax is aimed SOLELY at companies that took TARP money (in fact those that took in excess of $5 Billion).
It would be one thing if Congress taxed all income above $250,000 (or whatever number) at 90%. But here only bonuses from TARP recipients are taxed.
In effect, then these TARP recipients cannot pay the same bonuses that non-TARP recipients can. The former is subject to a much higher tax than the latter.
But for a private actor there are no co-sovereignty or 11th Amendment considerations. For example, Congress can't directly tax a state's income, but it can do exactly this for an individuals. Likewise, Congress can subject individuals to suits without their consent in a way it cannot subject states. In short, a number of the state rights and interests Pennhurst was designed to protect simply don't exist for individuals. The interests and context involved just aren't the same. So I certainly wouldn't assume that the Pennhurst rubric would automatically apply to Congress' dealings with private parties in anything like the way it applies to Spending Clause dealings with states.
Why weren't these issues raised when the Republican congress voted to bail out Detroit, but demanded that the contractual pay that union members received had to be lowered to the level of foriegn competitors? Help me to understand why this is somehow different...
Gabe said it above: The difference is that one thing happened before the companies took the deal, the other after. In this case, of course, the entire Congress (including Sen. "Oops! Did I Really Insert That?" Dodd) seems not to have read the legislation before passing it, and then set about trying to remedy the mistake by taxing the money it allowed to be spent this way back again.
What does it matter? It's all "stimulus," whether it goes to AIG executives and then out to wherever they spend it, or gets parceled out between their tax accountants and the Federal government next year, at which point it'll be shipped out in some different form to some other large financial corporation. $164M really is a rounding error in the context of this year's deficit, remember. We used to have calculators that only displayed three or four digits to the right of the decimal point.
Unfortunately, the other befogging chances — mainly of the bill stalling in some out-of-the-way committee room in the Senate, or getting vetoed if it actually passes somehow — make it awfully hard to tell what would be in any individual AIG exec's best interest even if it were a straight Prisoners' Dilemma.
But, yeah, Eugene .... pretty, pretty please? Let's have a take on this from the Prisoners' Dilemma point of view, and then I shall shut up and not complain about the free ice cream for another calendar year.
Given that the amount of money involved is trivial to the government and this is being done to show off to voters, I don't think there's any number greater than 0 which would prevent the passage of the law. They might pass it even if the number was 0, just to show they were serious.
There is no comparison. Nobody ever proposed doing the auto workers out of their pay for work they had already performed in reliance on their contract. The Republican proposal was merely that the contracted rate for future work be renegotiated, which is what happens in bankruptcy. Any worker who was unhappy with the new rate of pay would be free to seek his fortune elsewhere. None of those workers is contractually entitled to pay for work not yet performed.
The AIG bonuses, though, were for work already performed. These were vital workers whom AIG desperately needed to retain. A year ago they would, quite sensibly, have been looking to get out of the company before the rush, and would surely have left as soon as they found similarly-paying work elsewhere. To keep them from leaving they were promised these bonuses, and in reliance on that contract they stayed, and by all accounts performed heroically. Now that the year is up, they're contractually entitled to the bonuses; had they not been paid them they'd have sued and won.
What Congress is now proposing is theft, plain and simple. It is no different in any way whatsoever to me breaking into your home, Randy, and taking your stuff. If it passes, it will make criminals out of every Congressman who voted for it, the president who signs it, and every public servant who implements it.
Lockheed has lobbyists and makes campaign contributions.
These individual AIG employees had done neither. Thus, no one in Congress gave a hoot. They have to rely on the rule of law, the dumb bastards.
IF this is true, then I still don't understand how the gov't can abrogate a contract between labor and management. True, they had not yet performed the work. But they had an expectation that they in fact would perform the work at a higher pay.
Say I contract with you to paint my house for $1000. You haven't done the work yet, but you nonetheless are ready to start work today. I realize I don't have the money to pay for painting, so I ask the gov't for a grant, which they give me. Then the gov't comes in and says I paid too much, and they are reducing the contract to $700.
How is this okay? The gov't knew I had contracted at the higher rate at the time it gave me a grant. It didn't have to, but it nonetheless did so. Why is it okay for them to interfer with the contract?
If you are talking about the UAW contracts, here is the order of events:
1. GM asks for bailout.
2. Congress says "we will do that if you and the UAW renegotiate your contract to say X."
3. GM and the UAW do so.
4. They get bailout money.
Here would be those events handled AIG style
1. GM asks for bailout.
2. NY Chapter of the Fed buys controlling interest.
3. Someone decides they don't like the UAW contracts.
4. The government decides to put a 90% tax on whatever compensation the workers are getting that they don't like.
Note that in the way things actually happened, the UAW consented. They were totally free to refuse and see what they could get in bankruptcy court. Out of their own self-interest, they decided that 90% of a bailed-out loaf is better than a bankruptcy-court-decided-portion of a loaf.
I think one of problems here is nonmenclature. It seems that what the employees of AIG are getting is not really a 'bonus.' To me, a bonus is something unexpected, a reward for extraordinary good work. In the connotations of Wall Street-speak, bonus has now gotten to the point of meaning, you get a huge amount of money at the end of the year despite your performance. And you get a huge amount of money even if you run your company, and others, into the ground. It's this part that makes everyone so angry, and rightly so. It isn't capitalism, it socialism for the rich. It's frankly unAmerican, as we believe in rewarding people who perform well, and punishing those who do not.
If it's true that this is money owed to the workers for past performance, then the term should be different, like 'delayed payment' or something of the sort. I think by calling it a bonus, people are thinking that the very people who caused this crisis are getting something that they don't deserve.
A bonus is simply a large payment outside the usual cycle. It can be a reward for performance; these people would seem to deserve one for their valiant work over the past year, winding the company down and selling off its assets or preparing them for sale. Thanks to their efforts, the hole the company's in is now a trillion dollars shallower. If $150M in bonuses were a reward for that work, it would be a great bargain.
But a bonus doesn't have to be for performance. If a company has the practise of giving an extra week's pay at Xmas, that is a bonus - it's more than the usual paycheck - even if it's in the contract.
In this case, the bonus was the promised reward for not leaving. Any normal person working there would be looking for another job, and most or all would have found one and left, and where would that leave the company? So they were promised an extra payment if they stuck around for a year, and a similar extra payment next year if they're still around then. Without this they had no reason to stay, and now that they know they're not getting next year's bonus they have no reason to stay. If I were one of them, I'd be out of there as soon as I found another job, and never look back.
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