"Would a Super-Tax on AIG Bonuses Be an Unconstitutional Bill of Attainder?"

David Kravitz (Blue Mass Group) -- a very smart appellate lawyer and a former law clerk for Justice Sandra Day O'Connor -- writes on the subject. The most recent case I know of involving bills of attainder in the business law context is Consolidated Edison Co. v. Pataki, 292 F.3d 338 (2d Cir. 2002), which struck down as a bill of attainder the following New York statute:

§ 1. Declaration of legislative findings. The operator of a nuclear generating facility has a high duty of care to protect the health, safety and economic interests of its customers. Rate regulation of nuclear operators should discourage the taking of risks with regard to potential threats to public health and safety.

By continuing to operate steam generators known to be defective, and thereby increasing the risk of a radioactive release and/or an expensive plant outage, the Consolidated Edison Company failed to exercise reasonable care on behalf of the health, safety and economic interests of its customers. Therefore it would not be in the public interest for the company to recover from ratepayers any costs resulting from the February 15, 2000 outage at the Indian Point 2 Nuclear Facility.

§ 2. With respect to the February 15, 2000 outage at the Indian Point 2 Nuclear Facility, the New York state public service commission shall prohibit the Consolidated Edison Company from recovering from its ratepayers any costs associated with replacing the power from such facility. Such prohibition shall apply to any such costs incurred until the conclusion of such outage, or incurred at any time until all defective steam generation equipment at the facility has been replaced, whichever occurs later. Such prohibition shall apply to automatic adjustment mechanisms as well as base rates or any other rate recovery mechanism. The commission shall order the company to refund any such costs which have been recovered from ratepayers.

I can't say anything beyond that, since I'm not an expert on bills of attainder, and unfortunately don't have the time right now to get up to speed on the subject.


Tribe on Taxing AIG Bonuses:

Conor Clarke posts Laurence Tribe's views on whether the federal government could effectively take back the AIG bonuses without running afoul of constitutional prohibitions. Tribe's bottom line:

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.

If Professor Tribe is right, I wonder what such a targeted tax provision would look like. Megan McArdle also wonders what implications this will have for other institutions that received TARP.


More on AIG Bonus Tax as Bill of Attainder:

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.


Is the AIG Bonus Tax Really a "Tax"?

From Barrons:

Richard Epstein of the University of Chicago Law School says that while the tax is more egregious than others, there's no precedent to point to that says the scheme is unconstitutional. But this assumes that what Congress has designed really is a tax, says Erik Jensen of Case Western Reserve University Law School.

"Yes, the taxing clause of the Constitution gives Congress the power 'to lay and collect taxes,' and ordinarily a court won't strike down a charge that Congress says is a tax," Jensen wrote in an e-mail in response to our query. "But that's a matter of deference, not principle. The proposals now before Congress aren't anything like business-as-usual taxation, where deference would be appropriate. A charge imposed at a confiscatory rate of 90% on only a few specified people and on only part of their income isn't what the Constitution means by 'tax.' "

Jensen adds: "It's obvious from the way members of Congress are talking that punishment, not revenue-raising, is involved here. Whatever label Congress uses, confiscating a well-defined category of property from a small group of people sounds a lot more like a taking than it does a tax."

I think that's right (and not just because Erik's a colleague). The key to any constitutional challenge (whether under the Bill of Attainder clause or some other provision) will be convincing a court that the AIG bonus tax is not actually a "tax." The problem is that courts are usually inclined to accept congressional characterizations of legislation — though perhaps this provision will be a stretch too far.

Meanwhile, Professor Larry Tribe is reportedly having second thoughts on the constitutionality of the provision.

UPDATE: Calvin Massey thinks there are real equal protection problems with the tax a la USDA v. Moreno.


Epstein on AIG Bonus Tax:

Richard Epstein in today's WSJ:

The AIG bonuses were made pursuant to valid contracts entered into before the receipt of the bailout money. They were ratified in the legislation that provided for the bailout, and efforts to find loopholes in these contracts have proved unavailing.

Thus any sensible system of limited government should consider the proposed bills unconstitutional. Special taxes on some forms of income (but not others) and retroactive taxes put in place after business transactions are complete both merit strong condemnation. The bills in Congress are rife with both elements.

Nevertheless, a constitutional attack against any such law that might emerge faces an uphill battle.

Epstein's bottom line: Courts are too deferential to Congress, particularly in the context of taxes and economic regulation.