Large tax on bonuses face challenges

March 20, 2009 7:14:28 PM PDT
congressional efforts to take back the bonuses paid to AIG executives will face a legal challenge. There is already concern that the tax measure passed by the House is not constitutional. There are legal and philosophical objections.

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The idea of Congress going after a specific group of people's money, makes some folks squirm.

On Thursday night, NBC's late-night talk show host Jay Leno told President Barack Obama it was scary the way Congress could levy a 90-percent tax.

"If the government decides they don't like a guy all of a sudden, 'Hey we're going to tax you,' and then boom and it passes. That seems a little scary as a taxpayer," said Leno.

On Thursday, during the debate on the House floor, some saw the tax as even more threatening.

"It's unconstitutional what they want to do. It's wrong what they want to do," said Representative Steve LaTourette (R) of Ohio.

In spite of those kind of objections, lawmakers in the House passed the bill that would retroactively tax large bonuses at AIG or any other company that gets more than $5 billion in federal aid.

"I realize that this may be subjected to constitutional challenge and or the courts, but you know what I'm prepared to battle in the courts," said Representative Sheila Jackson Lee (D) of Texas.

Concord Congressman George Miller (D) says the House consulted with constitutional lawyers as they were drafting the bill.

"And we were appraised by them that they thought the manner in which we drafted was broad enough to be constitutional and they thought it would hold up," said Miller.

To understand what the legal objections would be, ABC7's Mark Matthews went to Sanford's law school. To a leading tax attorney with experience in drafting tax legislation, he says opponents will present a couple of arguments.

"Well one of the arguments they're going to make is that it's a bill of attainder and what a bill of attainder, it's part of the constitution, and what it really aims to do is it prevents the legislature from jailing you without a trial," says Joseph Bankman, from the Stanford Law School.

Bankman says there have been a few bill of attainder cases that haven't involved criminal action. But he says in the AIG case, the tax is meant to retrieve public money, not to punish someone without a trial. He also says opponents will also likely argue the tax is unfair because it's retroactive.

"So the question is if the government passes a tax in March, can it be effective as of January? Unfortunately for the executives, the answer is yes. So this has been litigated a lot. They can of course litigate it again and hope the court will change its mind, but most experts think that's not going to happen," says Bankman.

The Senate was expected to take up its version of the AIG tax bill next week, but now ABC's George Stephanopoulos is saying it's going to be a couple of weeks and perhaps never. He says the administration and Wall Street are both opposed to this new tax for fear the bonus restrictions would keep financial institutions from working with the Obama Administration to solve the banking crisis.

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