U.S. Rep. Kendrick B. Meek Strongly Backs Passage Of Executive Bonus Legislation

Press Release

Today U.S. Rep. Kendrick Meek voted to pass bipartisan legislation to tax bonuses given by companies such as AIG that received government rescue funds.

"Congress should not be required to legislate commonsense, but today, we did exactly that," said Congressman Kendrick Meek. "On a week where the stock market began showing signs of renewed life and Fed Chairman Ben Bernanke predicted that the economic downturn would level off in 2009, this scandal has forced us to take our eyes off the ultimate economic prize - the restoration of credibility and integrity to our financial system. Recipient of TARP funds must understand through legislation, public outcry and basic commonsense that bailout dollars are not multicolored Monopoly bills - they are hard earned taxpayer money and the future of our economy rests in the careful stewardship of those financial resources."

"When others were talking about establishing congressional inquiries into this matter, I was proud to join a group of active leaders who was demanding congressional action now on this matter," added Meek.

The legislation will tax bonuses from companies that received $5 billion or more in TARP funds at 90% for individuals who earn over $250,000 per year. Currently, the IRS withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million dollars.

A legal explanation offered in the Wall Street Journal blog about the constitutional nature of this legislation appears below:

Would an AIG-Bonus Tax Pass Constitutional Muster? (A Tribe Calls 'Yes!')
It's the puzzle of the week down in Washington: how to get the money back from the AIG bonus-recipients. As we've written before, the Obama administration seems inclined not to play legal hardball for a variety of reasons, one of which seems to be that it could wind up on the hook for more than it would stand to recover.

The most current proposal: tax the bejeezus out of the recipients. Senate Majority Leader Harry Reid and other congressional Democrats have proposed a 91 percent tax. There are problems with this, too. The NYT writes that some of the AIG employees are thought to be foreigners based in offices abroad and not liable for U.S. taxes.

But could such a tax also run into Constitutional problems? Some pundits (for example, here and here) have suggested yes. The most commonly mentioned difficulties include the prohibitions on so-called Bills of Attainder and retroactive laws (laws passed Ex Post Facto) mentioned in Article I, Section 9 of the Constitution. Other possible problems brought to our attention deal with the Contract Clause of the Article I, Section 10; the Due Process Clause of the Fifth Amendment; and the Takings Clause of the Fifth Amendment.

For a little help with this, we turned to Harvard's Laurence Tribe, he of the canonized treatise "American Constitutional Law." In an email exchange, we asked Tribe to address each of the five possible constitutional problems and he determined none of them likely poses a problem.

Bill of Attainder: Article I, Section 9 of the Constitution prohibits Congress from passing Bills of Attainder, laws that punish a single person or specific group of people without affording them a trial. Would a law that targeted AIG executives violate the prohibition on Bills of Attainder?

Responded Tribe:

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.

Ex Post Facto: Article I, Section 9 of the Constitution also, generally speaking, prohibits Congress from passing laws that apply retroactively. Would a law that imposed a tax on past-gotten earnings violate the Ex Post Facto Clause?

Responded Tribe:

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.

The Contract Clause: Article 1, Section 10 of the Constitution states: "No state shall . . . pass any Law . . . impairing the Obligation of Contracts." Now, what about this? With the passage of the law, wouldn't the government effectively be impairing contracts made between AIG and its executives?

Tribe had a quick dispatch for the ol' Contract Clause:

The Contract Impairment Clause applies exclusively to state legislation and has no federal counterpart that would pose any difficulty in this setting.

The Due Process Clause of the Fifth Amendment: The Due Process Clause of the Fifth Amendment states: "No person shall be . . . deprived of life, liberty, or property, without due process of law."

On the issue of procedural due process — generally speaking, on whether a person is given adequate access to the legal system and its procedures — Tribe said this also isn't a problem.

There's no suggestion that people would be targeted for payback obligations without notice and a fair opportunity to be heard on questions such as mistaken identity, so procedural due process would be satisfied.

On the issue of substantive due process — that is, whether a "liberty" has been taken away by a given act of Congress — Tribe said:

And, as to substantive due process, the only relevant requirement would be that the challenged measure be rationally calculated to achieve a legitimate government purpose, something nobody could deny in this instance.

The Takings Clause of the Fifth Amendment: The Takings Clause of the Fifth Amendment states: " . . . nor shall private property be taken for public use, without just compensation." The clause is the one that requires payment for property "taken" by the government's eminent domain power — the power to, say, grab a piece of property to build a public road. In response to our question on whether tax on AIG executives might constitute an unconstitutional "taking," Tribe responded:

Tax measures [generally speaking] are simply not vulnerable to challenge under the Takings Clause. . . The point of the Takings Clause is to require compensation for the fair market value of private property validly confiscated for the public's benefit, not to prevent the exaction of a tax that Congress is within its constitutional authority to impose.

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