Is Obama's "Responsibility Tax" on Banks Legal?
By Tim Cavanaugh
It didn't take long for the constitutional weaknesses in President Obama's proposed "Financial Crisis Responsibility Fee" to become clear. Eric Dash of Los Tiempos de Nueva York reports that a trade group is already setting up for an eventual constitutional challenge to the fee:
In an e-mail message sent last week to the heads of Wall Street legal departments, executives of the lobbying group, the Securities Industry and Financial Markets Association, wrote that a bank tax might be unconstitutional because it would unfairly single out and penalize big banks, said these officials, who did not want to be identified to preserve relationships with the group’s members.
The message said the association had hired Carter G. Phillips of Sidley Austin, who has argued dozens of cases before the Supreme Court, to study whether a tax on one industry could be considered arbitrary and punitive, providing the basis for a constitutional challenge, they said.
It's hard to get a glimpse of the legal angle through Dash's exertions to refute SIFMA's claim. But it appears to be a challenge to the Responsibility Fee on something like bill of attainder grounds -- that the law would be so narrowly tailored as to single out big banks for special punishment. As I noted the other day, there is also a due process problem: The targets of the fee are the largest banks, almost all of which have already paid off their TARP loans with interest and purchased their warrants from the Treasury Department. Add to this the limited scope and duration of TARP under the Emergency Economic Stabilization Act of 2008 and you've got pretty limited ground for building a new 10-year tax.
Dash wheels in familiar legal figurines to make irrelevant observations:
Outside legal scholars agree. “It seems to me that it is not even a close question,” said Laurence H. Tribe, a constitutional law professor at Harvard who was a legal adviser to the Obama campaign. Mr. Tribe contends that imposing a fee or requirement to return a sum of money cannot be construed as a punishment. Even more important, the administration’s proposal lays out a clear set of criteria, not a list of individual culprits, Mr. Tribe said.
If Tribe can name a precedent where a party that has already returned a sum of money is required to keep paying because another party is still in debt, he should do so. This kind of sloppy thinking tells you that the point of the Responsibility Fee is not to protect taxpayers or ensure square dealing but to make some easy politics out of some (justly) unpopular banks.