March 30, 2009
90 Percent Tax on AIG Bonuses May Be Unconstitutional
Proposal Passed by House of Representatives May Violate Bill of Attainder Clause, Set Dangerous Precedent
Washington, DC, March 30, 2009 - A 90 percent tax targeted towards bonuses received by employees and former employees of American Insurance Group (AIG) may be a violation of the Constitution's bill of attainder clause.
In Tax Foundation Fiscal Fact No. 165, "Proposed Tax on AIG Bonuses Raises Constitution and Policy Concerns," Tax Foundation tax counsel Joseph Henchman goes over legislation passed by the U.S. House of Representatives on March 19, 2009, which imposes a 90 percent income tax on bonuses earned by employees who work at a company that received an aggregate of $5 billion in federal TARP bailout funds. He notes that the bill's purpose is to strip a specified group of people of their property, even though other non-punitive options are available, and because the evidence suggests a punitive motive, the bill could violate the bill of attainder clause found in Article 1, Section 9 of the U.S. Constitution.
"Congress has decided that AIG bonus recipients should be stripped of their property due to their actions and the actions of their company. This judgment of their actions has occurred without benefit of trial by jury or presentation of witnesses or evidence," Henchman argues. "The Bill of Attainder Clause exists to prevent Congress from imposing punishments on groups based on past conduct because such a role is best served by judges and juries."
Henchman further notes that Congress had other options that it could have used instead of imposing this tax.
"If the real purpose of the AIG tax bill is to recoup wasted money from AIG, Congress could require AIG to repay the bailout funds used for the bonuses," Henchman says. "By specifically extracting those funds from bonus recipients, Congress is using a method that is broader than necessary for any non-punitive purpose."
The bill, H.R. 1586, which passed the House 328 to 93, is waiting to be heard in the U.S. Senate.
Fiscal Fact No. 165 can be found at http://www.taxfoundation.org/research/show/24518.html.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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