The Recession

Is it Constitutional to Tax the AIG Bonuses?

| by Reason Foundation

In today's Wall Street Journal, University of Chicago law professor Richard Epstein asks,
"Is the Bonus Tax Unconstitutional?" Unfortunately, he does not
actually answer that question. He says the retroactive confiscation of
AIG bonuses probably would be upheld by the courts, given the relevant
Supreme Court precedents.

It is not a constitutionally proscribed "bill
of attainder," because it applies not just to AIG employees but to
people working at other firms receiving bailout money. And the Supreme
Court has unanimously ruled that?Ex Post Facto?Clause does not apply to
tax laws.

Epstein says the two most promising approaches in the current
legal environment would be "substantive due process" or the Fifth
Amendment's Takings Clause, but he is not sanguine about the prospects
for either. Yet he concludes that "if Congress doesn't stop its descent
into the abyss, the Court should confess its past sin of constitutional
passivity and stop it for them." He writes:

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.

But
I can't tell from the essay which constitutional provision Epstein
thinks should be understood to bar the bonus tax. Maybe he's suggesting
that the Ex Post Facto Clause was intended to cover tax laws,
although the Supreme Court has ruled otherwise.

Or maybe he's saying
taxes count as "takings" (which would be weird, because then what would
constitute "just compensation"?). Or maybe he's saying the Due Process
Clause should be read broadly enough to forbid this sort of thing,
although that raises?difficult questions about how to apply the clause
in a constrained, principle way.

Don't get me wrong. I think the
bonus grab is terrible policy: impulsive, irrational, unjust, and
counterproductive, simultaneously undermining economic confidence and
the rule of law.?I'd like to believe it's also unconstitutional. But
I've yet to hear a persuasive explanation of why, and Epstein's essay
makes me think there may not be one.

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