The Case For Why the 90% Tax on AIG Bonuses is Unconstitutional

March 27, 2009

On March 19, 2009, the U.S. House of Representatives voted 328 to 93 to pass H.R. 1586, which imposes a 90% income tax on bonuses earned by employees who work at a company that received an aggregate of $5 billion in federal TARP bailout funds, including specifically Fannie Mae and Freddie Mac. If enacted, the additional tax would be retroactive to January 1, 2009, but any employee who waives or returns the bonus before the end of 2009 would have the surtax waived.

Critics of the bill have raised policy concerns as well as suggestions that the bill may violate the constitutional prohibition on Bills of Attainder and other restrictions on legislation. Because the purpose of the legislation is to strip a specified group of people of their property, even though other nonpunitive options are available, and because the evidence suggests a punitive motive, the bill could be found unconstitutional as a bill of attainder.

In Tax Foundation Fiscal Fact No. 165, “Proposed Tax on AIG Bonuses Raises Constitutional and Policy Concerns,” Tax Foundation Tax Counsel Joseph Henchman makes the case for why the AIG Bonus Tax violates the Bill of Attainder Clause and is poor tax policy.

Read Tax Foundation Fiscal Fact No. 165.

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