The Constitutionality of Taxing Bonuses

[JerichoHill]

On topic: Bonuses should be taxable, otherwise it is an easy avoidence loophole: Don't pay people a salary at all; their remuneration becomes 100% bonus.

Bonuses are taxable.

 

[I'm Cleo!]

Here's some analysis from Prof. Jack Balkin (who I don't believe is on Obama's list for Justice):

There is no problem under the Due Process Clause of the Fifth Amendment because the tax is rationally related to a legitimate government interest. The government interest is (1) the avoidance of extraordinary rents to companies and their employees who are being subsidized by the government in order to keep the financial system working properly; and (2) preventing improper incentives and moral hazard in subsidized companies and their employees. Even if the tax is not well designed to achieve these goals, in the sense that other alternatives might achieve the government's purposes better, the tax substantially furthers these purposes.

There is no problem under the takings clause of the Fifth Amendment. The tax does not involve the seizure of real property or an interest in real property. The tax is regulatory and for a public purpose as stated above. Such a tax may or may not be good policy but it does not constitute a taking.

There is no problem under the Ex Post Facto clause because the tax is not a criminal sanction.

There is no problem under the Contracts Clause because the Contracts Clause binds the states, and not the federal government.

Finally, there is no problem under the Bill of Attainder Clause because the tax does not single out specific individuals for punishment; in addition it is both prospective and retrospective in application. First, the tax defines the class to which it applies broadly and abstractly. It applies to persons working for enterprises that have received emergency government subsidy; it is not aimed at particular companies or specific employees. Second, the tax is for a regulatory purposes, as described above, and not for a punitive purpose. The fact that isolated members of Congress may have expressed an impermissible punitive or retributive purpose does not mean that the tax violates the Constitution if the text of the bill on its face has an overtly regulatory purpose. Third, the tax is both prospective and retrospective in its targets, which is consistent with a regulatory as opposed to a punitive purpose.

Cleo

 

[amadeus]

Here's some analysis from Prof. Jack Balkin (who I don't believe is on Obama's list for Justice):

I don't know if I can argue with the rest of it, but I do have to nitpick at this:

Second, the tax is for a regulatory purposes, as described above, and not for a punitive purpose.

I think it's pretty apparent that this is a punitive tax, given that it was passed as a populist reaction to manufactured "outrage" over the AIG bonuses.

 

[Fugitive Sisyphus]

Having ex-post facto tax laws seems to me as dangerous as having ex-post facto criminal laws. In one case they government can out of nowhere take money away from you and the other time away from you and time=money. But it ex-post facto laws will only be aimed at the bad guys right?

 

[Archbob]

On topic: Bonuses should be taxable, otherwise it is an easy avoidence loophole: Don't pay people a salary at all; their remuneration becomes 100% bonus.

They are taxable, at the same rate as salary, not at 90%

 

[Berzerker]

Did the whiz kids at AIG not realize they were dealing with a party with the power to tax? Did they strike a deal to cut off the taxing power?

Dodd is a member of that party and the deal to cut off taxing power is in the Constitution - no ex post fact legislation and no bills of attainder. Maybe y'all can clue us in on why those words actually mean Congress can do both, I dont see it.

 

[JollyRoger]

Dodd is a member of that party and the deal to cut off taxing power is in the Constitution - no ex post fact legislation and no bills of attainder. Maybe y'all can clue us in on why those words actually mean Congress can do both, I dont see it.

So did you return your stimulus check because the legislation creating it was ex post facto? How about a tax cut for income that was earned before the tax cut legislation was passed? Also, the law targets more than just AIG executives.

 

[I'm Cleo!]

I don't know if I can argue with the rest of it, but I do have to nitpick at this:


I think it's pretty apparent that this is a punitive tax, given that it was passed as a populist reaction to manufactured "outrage" over the AIG bonuses.

I understand that the law in part serves the purpose of expressing popular outrage at the AIG execs (though I'd argue that the outrage is real), Congress passed the law that Congress passed, which states that "in order to keep people from simply cashing in on the bailouts, we're going to tax bonus payments from companies receiving bailout money." Courts can only judge the constitutionality of the law as its written (or applied).

Keeping people from cashing in on the bailouts (i.e., Balkin's "preventing moral hazard") is a valid government objective and taxing bonus payments does help to achieve that. Maybe you think that it's an inefficient way to do that, but courts can't strike down a piece of legislation because it doesn't achieve its objectives as efficiently as other legislation might. Where you're not talking about some kind of fundamental right, courts are very deferential to legislatures. A court can't strike down legislation that furthers a valid governmental interest simply because it would have done it differently.

Cleo

 

[Berzerker]

Here's some analysis from Prof. Jack Balkin (who I don't believe is on Obama's list for Justice):

There is no problem under the Due Process Clause of the Fifth Amendment because the tax is rationally related to a legitimate government interest.

Gee, I must have missed that exception to due process in the 5th Amendment. The govt says it has an interest in deterring drug use, can Congress throw people in jail for past drug use?

The government interest is (1) the avoidance of extraordinary rents to companies and their employees who are being subsidized by the government in order to keep the financial system working properly

And the time to avoid that was when writing and passing the Bill. Going back in time to re-write it would mean Congress can put us in jail or take our money without any law on the books at the time of our actions. Due process means something, and no bills of attainder and no ex post facto legislation is part of that due process.

(2) preventing improper incentives and moral hazard in subsidized companies and their employees. Even if the tax is not well designed to achieve these goals, in the sense that other alternatives might achieve the government's purposes better, the tax substantially furthers these purposes.

Well, since these constitutional scholars are telling me no bills of attainder and no ex post facto laws really means they can take our property away why should I expect any logic in the actual arguments? Improper incentive - like telling everyone Congress can not only change the laws, they can time travel and change past laws and treat us as if the new laws were in place the whole time. And they can target groups of people based on political whim, wonderful. Of course, all tyrannical powers target the bad people first. The Constitution is clear - no bills of attainder and no ex post facto laws. And when this prohibition is placed on the states, we're given context - or any laws endangering contracts. In Federalist 44 Madison makes it clear the Framers fear of ex post facto law included matters of money, business, contracts. I'm supposed to ignore all that in favor of Jack's theory the Framers forgot to include his exceptions to the rule within the rulebook? Aint gonna happen... I wonder how the liberals would be reacting if this was Bush retroactively taking money from auto workers. Oh yeah, they weren't too happy when some Repubs were calling for new labor contracts with the auto workers because the old ones cant be honored. Hey, now Congress can just mandate new contracts - Congress subsidizes the auto companies, Congress can nullify contracts. Yippee... The USA is trying to re-legalize a form of slavery... Work for us and the bonuses we gave you can be taken back in the future.

There is no problem under the takings clause of the Fifth Amendment. The tax does not involve the seizure of real property or an interest in real property.

Huh? The money I made before this tax aint my property? But I already borrowed against it to buy a house

The tax is regulatory and for a public purpose as stated above. Such a tax may or may not be good policy but it does not constitute a taking.

All taxes are takings, some are just lawful under the Constitution and some are not - retroactive taxes are not. And I reject this absurdity that "a public purpose" is even involved much less a caveat to the prohibition on Congress. It serves me no purpose when Congress can go back in time and change laws around to punish me for their stupidity and/or corruption (Chris Dodd).

There is no problem under the Ex Post Facto clause because the tax is not a criminal sanction.

He just repeats Tribe's nonsense, without explanation... Because no explanation exists. Where does the Constitution mention a distinction between criminal and civil? It doesn't... And the same prohibition placed on the states by these men who wrote that prohibition makes it clear taxes, regulations, and economic transactions are protected too. They wanted a stable economic environment for business - that was their "public purpose".

There is no problem under the Contracts Clause because the Contracts Clause binds the states, and not the federal government.

But the same language is used in both prohibitions

Finally, there is no problem under the Bill of Attainder Clause because the tax does not single out specific individuals for punishment

This is for anyone still in need of proof this guy is a weasel (not u Cleo ), there you have it. The govt already demanded and got their names. Lets ask them if they feel "singled out".

in addition it is both prospective and retrospective in application.

The issue aint prospective, telling me it is dont justify making it retrospective.

First, the tax defines the class to which it applies broadly and abstractly. It applies to persons working for enterprises that have received emergency government subsidy; it is not aimed at particular companies or specific employees.

Second, the tax is for a regulatory purposes, as described above, and not for a punitive purpose.

Bushit... Is this guy a liar or what? Can it be any more obvious?

The fact that isolated members of Congress may have expressed an impermissible punitive or retributive purpose does not mean that the tax violates the Constitution if the text of the bill on its face has an overtly regulatory purpose. Third, the tax is both prospective and retrospective in its targets, which is consistent with a regulatory as opposed to a punitive purpose.

So the fact members of Congress told us why they did this is irrelevant?

No bills of attainder and no ex post facto law

Thats what the Constitution says, it doesn't say

no bills of attainder and no ex post facto law except when Congress sees a public purpose or when Congress calls it regulatory and not punitive and when Congress applies the ex post facto law to the future as well as the past blah blah blah

Amazing what can be written into 10 or so words...

 

[JollyRoger]

A court can't strike down legislation that furthers a valid governmental interest simply because it would have done it differently.

Cleo

Unless it's DC's gun laws or Seattle's school assignments.

 

[I'm Cleo!]

Bushit... Is this guy a liar or what? Can it be any more obvious?

Did it cross your mind that Professors Balkin and Tribe might be making good faith arguments, and if you don't understand what they're saying, it's not because they're lying, but because you actually don't know much Constitutional Law?

Because they're not lying.

(Seriously, Berzerker, there are tons of terms of art that you completely misuse in your response to Balkin's post. "Due Process," "taking," "real property," &c. Honestly, you should take his argument seriously and go and try to learn some Con Law.)

Cleo

 

[Mise]

I understand that the law in part serves the purpose of expressing popular outrage at the AIG execs (though I'd argue that the outrage is real), Congress passed the law that Congress passed, which states that "in order to keep people from simply cashing in on the bailouts, we're going to tax bonus payments from companies receiving bailout money." Courts can only judge the constitutionality of the law as its written (or applied).

Keeping people from cashing in on the bailouts (i.e., Balkin's "preventing moral hazard") is a valid government objective and taxing bonus payments does help to achieve that. Maybe you think that it's an inefficient way to do that, but courts can't strike down a piece of legislation because it doesn't achieve its objectives as efficiently as other legislation might. Where you're not talking about some kind of fundamental right, courts are very deferential to legislatures. A court can't strike down legislation that furthers a valid governmental interest simply because it would have done it differently.

Cleo

Is there any fundamental right that prevents the government from making the recipients of the bailout cash from undergoing a series of tests (riddles, puzzles, tests of faith - you know, all the usual stuff) to determine their worthiness? I'm just trying to determine at what point of absurdity and incredulity does a law have to reach before a court might realistically strike it down.

 

[JollyRoger]

I'm just trying to determine at what point of absurdity and incredulity does a law have to reach before a court might realistically strike it down.

You can place the point of absurdity pretty farout there if you are absorbing the slap of the invisible hand for an institution cutting and running from the free market.

 

[Rashiminos]

A relevant SCOTUS decision:
http://www.law.cornell.edu/supct/html/92-1941.ZC1.html

The reasoning the Court applies to uphold the statute in this case guarantees that all retroactive tax laws will henceforth be valid. To pass constitutional muster the retroactive aspects of the statute need only be "rationally related to a legitimate legislative purpose." Ante, at 9. Revenue raising is certainly a legitimate legislative purpose, see U. S. Const., Art. I, §8, cl. 1, and any lawthat retroactively adds a tax, removes a deduction, or increases a rate rationally furthers that goal. I welcome this recognition that the Due Process Clause does not prevent retroactive taxes, since I believe that the Due Process Clause guarantees no substantive rights, but only (as it says) process, see TXO Production Corp. v. Alliance Resources Corp., 509 U. S. ___, ___ (1993) (slip op., at 2) (Scalia, J., concurring in judgment).

 

[Mise]

You can place the point of absurdity pretty farout there if you are absorbing the slap of the invisible hand for an institution cutting and running from the free market.

I see, so justice applies applies equally to all people, unless their bankers, in which case we can replace it with a cunning invisible hand metaphor.

 

[JollyRoger]

I see, so justice applies applies equally to all people, unless their bankers, in which case we can replace it with a cunning invisible hand metaphor.

The AIG bankers haven't had to pee in a cup yet, so they are more equal than some welfare recipients in that respect already.

 

[Mise]

I don't know anyone who's had to pee in a cup to receive benefits. Must be one of those quaint American idiosyncrasies.

EDIT: Oh, wait, I just thought of a clever metaphor!

*ahem*

"Sounds more like their pissing on freedom to me."

HAH! Beat that

 

[I'm Cleo!]

Is there any fundamental right that prevents the government from making the recipients of the bailout cash from undergoing a series of tests (riddles, puzzles, tests of faith - you know, all the usual stuff) to determine their worthiness? I'm just trying to determine at what point of absurdity and incredulity does a law have to reach before a court might realistically strike it down.

No, there's no fundamental right in the Constitution to receive federal money without strings attached. Sorry.

Of course some things wouldn't be allowed, but they'd have to fail a test known as "rational basis review." If the law is not "rationally related to a legitimate government interest," it's an unconstitutional exercise of Congress's power. And "rationally related" means that there is any logical connection between the proposed ends and means. It would have to be something for which a court could not find any logical connection between the end and means. Eliminating moral hazard is a "legitimate government interest," and taxing bonuses is "rationally related" to it. You may think it's unwise policy, but whether a law ought to be passed and whether a law can be passed are two different questions.

Cleo

 

[Mise]

I think forcing bonus recipients to wear their pants on their heads would encourage them to give their bonuses back.

 

[JerichoHill]

All this is now moot. Obama practically said he'd veto this bill on 60 minutes last night, plus all the bonuses have been given back, pretty much, now

Mission Accomplished?