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AIG: An Insane Government

March 23, 2009

After last weeks AIG bonus frenzy, more sensible voices are emerging to point out some of the unintended consequences of the foolish TARP Bonus confiscation measure passed in the House last week.

The Tax Prof has a post (Urist: The AIG Tax Is Sexist) pointing out how the tax will clobber second earners in households when one taxpayer receives a TARP bonus. A similar fact pattern is illustrated here:

Say you're a teller at a Wells Fargo branch in Minnesota and you're married to a lawyer who makes $250,000 this year. You get a $10,000 bonus for your good work during 2008. The government steals it all (90 percent federal plus 8.5 percent state plus, unless it's included in the 90 percent, 3 percent Medicare). That is simply insane.

NYU Law Prof. Daniel Shaviro says that Congress shouldn't be so sure such a bonus isn't an unconstitutional "bill of attainder":

The 90% tax may conceivably face a serious constitutional challenge notwithstanding Larry Tribe's assurances to the contrary. Not a surprise, perhaps, as Tribe can be a bit political in his bottom line constitutional judgments. One source of possible trouble could be a NY state case from a few years back, Pataki v. Con Ed, in which a provision denying rate adjustments to the Con Ed shareholders for the blunders that had led to the Indian Point nuclear power plant problems was struck down as a bill of attainder. Obviously, the 90% tax is being drafted with an eye to avoiding the same fate, by causing it to apply more generally. But in the Con Ed case, the court cited legislative history showing that the legislators were specifically angry at Con Ed for its bad deeds and wanted to inflict punishment (hardly unreasonably, but that's not the point when the question of law is bill of attainder). Needless to say, the record of enactment for the 90% tax (if it goes through) is hardly lacking in evidence that the legislators were specifically interested in nailing AIG.

But if Congress is serious about this banana republican legislation, it's only fair that they apply the tax to income earned by congressional spouse-lobbyists and kids working for government contractors. Because we're public spirited around here, we even have drafted the necessary language for the TARP bonus tax bill.

Tags: dan shaviro.Powerline.TARP.TARP tax.TaxProf.