"The power to tax involves the power to destroy."

                                                                         –Chief Justice John Marshall  in McCulloch v. Maryland 

Senate Majority Leader Harry Reid and other congressional Democrats have proposed a 91% tax on bonuses given to executives of AIG and other companies. The proposed legislation is a way to recover the $165 million paid out to AIG executives, which triggered widespread outrage because the insurance giant received more than $170 billion in U.S. taxpayer money and is now owned 80% by the U.S. Government.

AIG claims its hands are tied under contract law and that the payouts had to be made to avoid lawsuits. Some legislators think if the government "claws the money back" from the AIG executives, that objection is removed.

Harvard Constitutional Law Professor Lawrence Tribe was asked by Wall Street Journal Blog reporter Ashby Jones whether a retroactive tax would violate either the prohibition on Bills of Attainder or Ex Post Facto Laws.

A Bill of Attainder is an act of the legislature declaring a person or group of persons guilty of some crime and punishing them without benefit of a trial. The word "attainder", meaning "taintedness", is part of English common law. Under common law, a criminal condemned for a serious crime, could be declared "attainted", meaning that his civil rights were nullified: he could no longer own property or pass property to his family by will. Bills of attainder are forbidden by Article I, section 9, clause 3 of the U. S. Constitution.

In an e-mail exchange, Tribe was asked if a law that targeted AIG executives violates the prohibition on Bills of Attainder. Tribe responded, "I do think Congress (and the Executive Branch) could avoid serious Bill of Attainder problems by passing a sufficiently broad law . . . rather than targeting a closed class of named executives even though the prohibition against Bills of Attainder, unlike that against Ex Post Facto laws, potentially reaches civil as well as criminal penalties."

An Ex Post Facto Law (from the Latin for "after the fact") is a law that retroactively changes the legal consequences of acts committed or the legal status of facts and relationships that existed prior to the enactment of the law. The federal government is prohibited from passing ex post facto laws by Article I, section 9 of the U.S. Constitution, and the states are prohibited from the same by clause 1 of section 10.

When asked by the Wall Street Journal if a law that imposed a tax on past-gotten earnings would violate the Ex Post Facto Clause, Tribe responded, "The Ex Post Facto Clause applies exclusively to criminal punishment and poses no difficulty here. And the fact that the measure contemplated would operate retroactively as well as prospectively doesn’t distinguish it from any number of tax and other financial measures that the Supreme Court has upheld over the claim that fundamental fairness precludes retroactively undoing contractual obligations."

In the Wall Street Journal Law Blog interview, Tribe also addressed whether the law would violate the contracts clause, the takings clause and the due process clause. He saw no problem. Many courts have ruled requirements for substantive due process are not violated if the legislation has a rational legislative purpose, "something nobody could deny in this instance," according to Tribe.

But wait – the wind is changing.

Kay Bell, in her Don’t Mess With Taxes Blog, writes: "Laurence H. Tribe, a professor of constitutional law at Harvard Law School, first thought the [AIG Bonus Tax] would pass court review. But he has had a change of heart, now telling Tax Analysts he has ‘growing doubts about the constitutionality of H.R. 1586’s 90 percent AIG bonus clawback tax.’"

Greg Sargent, author of The Plum Line Blog, reports on his telephone conversation with Professor Tribe. According to Sargent, Tribe says he is now leaning towards seeing the clawback tax as unconstitutional. "Tribe says the problem with the bill is that the Constitution forbids Congress from enacting a "bill of attainder", which would essentially "legislate punishment of an identifiable class", as he put it. Tribe noted that the Supreme Court had used that clause to slap down other laws."

As quoted by Sargent: "Its punitive intent is increasingly transparent," Tribe says, "when you have Chuck Grassley calling on [executives] to commit suicide, and people responding to pitch fork sentiment, it’s hard to argue that this isn’t an attempt to punish an identifiable set of individuals who are the subject of understandable outrage."

Hmmmm. So which is it? It might be bad tax policy, but it’s not unconstitutional. Tribe was right the first time. A number of the bonuses have been returned, so perhaps it’s a moot point. Until next time.