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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

No kidding.

What A Sham, er, Shame. Whatever.
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