Ex Post Punitive
| Tue Mar. 17, 2009 7:32 PM PDT
Would it be legal to pass a law that retroactively taxed away the bonuses of all those AIG traders who destroyed the planet? The main constitutional objections are that such a law might be construed as either ex post facto or a bill of attainder. So what about that?
Well, Conor Clarke talked to certified expert Laurence Tribe, and he says not to worry about bill of attainder issues: "It would not be terribly difficult to structure a tax, even one that approached a rate of 100%, levied on some or all of the bonuses already handed out (or to be handed out in the future) by AIG and other recipients of federal bailout funds so that the tax would survive bill of attainder clause challenge."
Great! So what about the problem with it being retroactive? The Supreme Court has upheld retroactive taxes against ex post facto arguments before, and over at Interfluidity Steve Waldman quotes Daniel Troy, author of Retroactive Legislation, on a similar objection to the Superfund legislation: "Because the ex post facto clauses do not apply to civil laws, Superfund therefore would have to be characterized as punitive in nature to be classified as an ex post facto law. The current Court, though, has suggested that unless a law is exclusively punitive, it will not come within the scope of the ex post facto clauses."
Italics mine. So it looks like the answer here is simple: even though the purpose of this tax would pretty clearly be punitive with extreme prejudice, we need to carefully pretend that it's not. And we need to make sure the legislative history shows that it's not (it should be "manifestly regulatory and fiscal" Tribe says). Then everything is kosher! We can tax their socks off!
So there you have it. Now we just have to figure out if most of these guys are actually U.S. citizens in the first place. I hear that New York state AG Andrew Cuomo is working on that.
Well, Conor Clarke talked to certified expert Laurence Tribe, and he says not to worry about bill of attainder issues: "It would not be terribly difficult to structure a tax, even one that approached a rate of 100%, levied on some or all of the bonuses already handed out (or to be handed out in the future) by AIG and other recipients of federal bailout funds so that the tax would survive bill of attainder clause challenge."
Great! So what about the problem with it being retroactive? The Supreme Court has upheld retroactive taxes against ex post facto arguments before, and over at Interfluidity Steve Waldman quotes Daniel Troy, author of Retroactive Legislation, on a similar objection to the Superfund legislation: "Because the ex post facto clauses do not apply to civil laws, Superfund therefore would have to be characterized as punitive in nature to be classified as an ex post facto law. The current Court, though, has suggested that unless a law is exclusively punitive, it will not come within the scope of the ex post facto clauses."Italics mine. So it looks like the answer here is simple: even though the purpose of this tax would pretty clearly be punitive with extreme prejudice, we need to carefully pretend that it's not. And we need to make sure the legislative history shows that it's not (it should be "manifestly regulatory and fiscal" Tribe says). Then everything is kosher! We can tax their socks off!
So there you have it. Now we just have to figure out if most of these guys are actually U.S. citizens in the first place. I hear that New York state AG Andrew Cuomo is working on that.
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Comments
As an example, why don't
Submitted by Anonymous (not verified) on Tue Mar. 17, 2009 8:09 PM PDT.
As an example, why don't they just withhold the next bailout payment or two. (Withholding just the bonus payouts seems a tad limp-wristed.) Or put them into receivership (as Paul Krugman advocates).
AIG bonus recovery
Submitted by Rick B on Wed Mar. 18, 2009 8:27 AM PDT.
Why not just combine the recovery of the bonuses with breaking AIG up into the viable insurance companies and the financial products company?
Part of the problem appears to be that the top management of AIG is either protecting the FP people or the FP division is using the AIG top management as cover. Also the FP executives are trying to shift all the blame for everything to Caccano as the designated scapegoat for FP as a whole. They can do that more easily as a division of AIG, but if separated out and isolated on their own, it doesn't work as well.
Such a break-up would also concentrate the problems into a "bad" AIG. The new organizations would be less likely to be considered "too big to fail."
Combining the breakup into legislation along with recovery of the bonuses would dilute the apparent "punitive" aspects of retroactive recovery of the bonuses. Instead it could be consider working to assure that the new FP AIG was adequately financed, and the funds they already have were not wasted.
Constitution is a living document
Submitted by Anonymous (not verified) on Tue Mar. 17, 2009 8:17 PM PDT.
I would not be upset with a "AIG Executive Bonuses Vendetta" Amendment to the consitution -- it should pass reasonably quickly.
Clearly we do not want to get in the habit of changing the constitution -- but if the populace is outraged enough to clear the very high bar, and the current constitution is making it impossible to do the right thing, why not.
Yeah! We're going to
Submitted by felinecannonball on Tue Mar. 17, 2009 8:30 PM PDT.
Yeah! We're going to increase our tax revenue and improve regulation ensuring smooth and efficient operation of the free market on their ass. Personally though, I think our account deficit justifies universal IRS audits for folks in the 98% tax bracket and heavy fines for not paying estimated taxes promptly on first quarter bonuses.
Really?
Submitted by J. Michael Neal on Tue Mar. 17, 2009 8:50 PM PDT.
Am I really the only one that thinks doing an end run around the Constitution by not saying that we're doing an end run around the Constitution is something the last administration would do? This just isn't a good idea. Yeah, it would be very satisfying going down, but I'm fearing a bad case of heartburn.
I agree with J. Michael Neal here. From a legal standpoint, I think that the two arguments you got and gave opinions on are cognizable but, ultimately, would be overcome as indicated. There is a third argument that likely would fail too, namely equal protection violation. I don't think any of these, especially the EP argument, would prevent this. But it is a whole boatload of concern that adds up to it being a bad idea. Set this precedent here and it will come back to bite us in the butt somewhere else. There are better ways, that actually split this open to inform the public and actually attack the merits that are far better avenues to pursue.
This isn't a tax. It's an ownerhip question.
Since when do the 80% owners of a company give instructions and then get ignored? Liddy should be fired, and so should the new top managers in FP, just to encourage the rest.
Then the perpetrators of this crime (theft from employer) should be required to make restitution. Punishment of an administrative nature would be in addition.
We, the owners of AIG, should expect and demand this.
In spite of Kevin's provocative framing of the issue, I see no Constitutional issue here. This is a simple matter of new owners taking over the assets of a failed business and having problems with employees who do not want to submit to the necessary administrative controls required to correct the failures of the old management.
I keep hearing this
Submitted by David F (not verified) on Wed Mar. 18, 2009 2:43 PM PDT.
I keep hearing this ownership theme, from Barney Frank and others, for example. But is it really true? There are shareholders of AIG, and I'm not sure that our massive money infusion bought us any common stock. Maybe it should have, but I don't believe it did. We certainly have a right to be outraged that public money is going into the pockets of folks who might've helped create this disaster, but I don't think it's correct to say we "own" the company, and have any legal right to demand that they do or don't do something. Let's talk about what conditions we'd put on any more bailouts, or even talk about how we should've (or could've) prevented this from happening. But let's not pretend that the United States owns AIG.
An excuse to do something we ought to do
Submitted by jimBOB on Wed Mar. 18, 2009 12:58 AM PDT.
Actually I'd be happy to use this as an excuse to institute some higher tax brackets generally, i.e. 90% tax rates on personal annual income above $100 million. (Nobody personally adds that much value anyway in a year; people who make that kind of money are just usually just practicing some form of robber barony.) For the small fry pulling down just tens of millions, we'd let them off with 50-60%.
Doing this would solve the punitive problem, help close the deficit, and do something about the ridiculously unequal income distribution curve.
90% tax?
Submitted by Suki (not verified) on Thu Mar. 19, 2009 3:55 AM PDT.
Hell, why don't we just enforce the tax laws as currently written? We would have probably more than enough revenue if individuals and corporations simply paid what they owe.
Many, if not most, of our public servants owe tens of thousands of dollars or more in unpaid income taxes yet are only motivated to pay if they are outed by the press. The IRS would garnish mere mortals' wages, if not threaten prosecution and prison time - ah, but our public servants (Republican and otherwise) move in a higher and more rarefied atmosphere and are somehow exempt from such penalties.
No end run, an IRS run
Submitted by SRW1 (not verified) on Wed Mar. 18, 2009 3:11 AM PDT.
No end run around the constitution!
However, as these AIG guys don't seem to have any compunction to engage into what is essentially blackmail, I see no moral problem to bring down the full force of the government on them: Send in the IRS for a real thorough revue. Check whether these guys are so lily-weight. If not, sanction any infarction with the highest possible penalty. Could probably get Gordon Brown to do the same with the guys located in London.
Lastly, I'm also with jimBOB on instituting new tax brackets, in terms of reasoning as well as how to structure them roughly.
Punitive has a fairly
Submitted by Barbara (not verified) on Wed Mar. 18, 2009 5:16 AM PDT.
Punitive has a fairly specific meaning -- which is to say, that the penalties are so harsh they are comparable to criminal sanctions. Jailing, for instance, is ALWAYS punitive. Levying double damages or even treble damages may or may not be punitive. The point of the distinction is to determine when criminal due process protections must be afforded to an individual at risk of being assessed the penalty. Not all penalties are punitive. And certainly, a penalty that is simply a tax of some percentage of income derived from a specific source would hardly ever be punitive in the sense the word has been interpreted by the Supreme Court. It doesn't matter whether the tax is passed out of a desire to school or "punish" the executives in question.
I really do enjoy your site
Submitted by Anonymous (not verified) on Wed Mar. 18, 2009 6:40 AM PDT.
I really do enjoy your site and the commentary, but would you please stop with the grisly pictures (a headsman, a bloody zombie, etc.)?
Since these guys were
Submitted by John Sherman (not verified) on Wed Mar. 18, 2009 7:53 AM PDT.
Since these guys were getting the bonuses for being the best and the brightest, why not simply nail them for taking money under false pretenses?
Rights Issues; Wrong Framing
Submitted by Joe S. (not verified) on Wed Mar. 18, 2009 8:19 AM PDT.
There isn't much of a chance of such a tax being considered either ex post facto or a bill of attainder. But that's not the real problem. Would the tax be a taking, which requires just compensation: i.e., reimbursement? (After Kelo, the taking is almost certain to be Constitutional, but that merely triggers the just compensation requirement.) IIRC, the case law is a bit closer here.
Kevin, I am surprised to see
Submitted by David F (not verified) on Wed Mar. 18, 2009 2:37 PM PDT.
Kevin, I am surprised to see you going down this road. Doesn't anyone else have a problem with the idea of coming up with, essentially, a fictional "legislative history" that "pretends" something other that what is true, so that we can enact a law that specifically targets particular people, with what is conceded to be "punitive" and "extremely prejudicial" effects. We can and should deplore these bonus payouts. The AIG board should have long ago cleaned house, and in fact the board should resigned in embarrassment and sense of responsibility long ago. But if the shoe were on the foot, and conservatives were speaking the kind of language that many of us on the left are speaking now, we'd be rightfully outraged. We shouldn't willfully lose sight of what the ex post facto and bill of attainder provisions in the Constitution are all about - to protect individuals from retroactive government punishment.
Punitive?
Submitted by rmenglish (not verified) on Wed Mar. 18, 2009 8:25 PM PDT.
Restricting or reducing a benefit is not punitive, in any meaningful sense of the word. Legally, I don't even believe that holding the employees liable for compensatory damages for the money they lost the company would be punitive. It's not punitive to require someone to take responsibility for their actions. It's punitive to require them to do more than that. Withholding a few hundred million from folks who've squandered hundreds of billions doesn't even come close.
I have no doubt that some of
Submitted by David F (not verified) on Thu Mar. 19, 2009 7:36 AM PDT.
I have no doubt that some of the people who have been paid were bad actors or to some degree responsible for the AIG debacle, an they should be held accountable and prosecuted if appropriate. But do you think that everyone who got paid as their contracts apparently called for was responsible? Who? How do you know? Are we going to brand all of them guilty by association, and treat them all the same? That strikes me as dangerous and irresponsible.
Do the U.S. taxpayers own
Submitted by miniskirt (not verified) on Fri Mar. 20, 2009 9:05 AM PDT.
Do the U.S. taxpayers own AIG? Do we have any board members working for us? Can we hire and fire staff? If not, then we're not in control of bonuses. Who shamefully gave our money away without gaining meaningful control?
Looks like we need to exercise better control over Congress.
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