Is Congress using a Bill of Attainder to get A.I.G.?

So with little argument and a 300-plus majority, Congress yesterday voted to tax bonuses given by companies (read “A.I.G.”) funded under TARP at 90%, thus recovering the multi-million dollar awards to anyone in these companies earning over half a million bucks in regular income. The fact that this was targeted at TARP recipients in general was an attempt to generalize the law… and not make it, as it clearly is, a focused punishment of a particular company.

Essentially, this is what is referred to as a Writ or Bill of Attainder, and which is specifically banned in the Constitution.

A bill of Attainder is legislative act that singles out an individual or group for punishment without a trial. Article I, Section 9, paragraph 3 specifically states: “No Bill of Attainder or ex post facto Law will be passed.”

James Madison, writing in the Federalist Papers (Number 44) in 1788 stated:

“Bills of attainder, ex post facto laws, and laws impairing the obligations of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. … The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less-informed part of the community.”

The complaints of a majority of Americans against the contracts agreed to by A.I.G. (and, for that matter, Fanny and Freddie) are solid and reasonable, but taxing them in this specific manner is likely to be unconstitutional.

Congress is really trying to cover up its unfortunate involvement in letting all this happen in the first place… a triumph of hpocrisy.

There had better be another, legal solution.

Under The LobsterScope


  1. Warren

    Just watch how quickly those companies that are in TARP scale back the bonuses and shift the money to base pay.


  2. gazelle1929

    A bill of attainder is one which purports to attaint (criminally condemn) a person without benefit of criminal trial. In bygone days, a bill of attainder could declare guilty not only an individual but all of his or her descendants, meaning that entire families were executed.

    An ex post facto law is one which attempts to take away a right that has already accrued to an individual. Perhaps the best example of that is the so-called Hiss Act, which was passed in the aftermath of Alger Hiss’s perjury conviction to deny Federal pension benefits to anyone who was convicted of perjury (among other crimes) in connection with espionage investigations.

    Hiss had worked for the Government for some years prior to his conviction, and when he became eligible for a pension from the Government (based upon a combination of years of service and attained age) he applied to The Civil Service Commission (now Office of Personnel Management) for a pension, which was in the neighborhood of $125 a month IIRC. The CSC denied his pension application and Hiss filed suit. The courts ruled that the actions Mr. Hiss was convicted of had taken place prior to the date of enactment of the Hiss Act and therefore the application of the law to him ex post facto was unconstitutional. To put it another way: when Hiss perjured himself the law did not at the time allow denial of pension benefits for such an infraction, therefore he was entitled to them under the law.

    Bills of attainder pertain to criminal matters.

    But what we have in the case here is not, I believe, either a bill of attainder or an ex post facto law. The Government has long been able to make tax law changes during a tax year, and to make them retroactive to the beginning of the year. But once a tax year is done it is “etched in regulation” and may not be retroactively amended. Most if not all of the employees who received the bonuses from AIG will have the calendar year as their tax year. I have never met an individual who has elected to and received permission from the IRS to file on other than a calendar year basis, but I have to assume that some exist. If one of those people involved did have a tax year that ended some time after the receipt of the bonus and before the passage of an act taxing the income at a higher rate, he or she is in clover.

    But all the rest, and my assumption is that means all of them, will find they are bound by tax laws passed during their tax year (the calendar year.)

    To turn this around, when Congress passes laws to reduce taxes, does anyone scrupulously say, “Well, the law was passed October 7, and I want to pay the higher tax rate for that part of my income I got before that day?” Nope. The laws are effective for the entire tax year, even if enacted into law on December 31.

  3. Carl Nemo

    Thanks gazelle1929…

    I must say your writing on this subject is a gem; ie., a nice piece of expository work…! :)

    Carl Nemo **==

  4. almandine

    One could assert the right-to-property the bonuses represent – contracts penned before the current tax year – in terms of ex post facto.

    Collectivism is slavery…

  5. Wecouldoit

    Well said Gazelle1929!

    I continues to amaze me that although I have researched and read many reasoned posts about the “idea” of a tax claw back, many continue to cite Attainder and ex post facto as reasons why such legislation is “obviously” unconstitutional. Of course it isn’t. There is plenty of precedent as to why such an act is not constrained by the constitution. Whether it is wise and well written is the topic for another day. My vote is that we try to anticipate the total impact of the legislation before enacting it…this time!

  6. JerryG

    It would eventually be found unconstitutional with no ands, ifs or buts about it, however the Senate isn’t even going to consider it. The good news is that maybe, just maybe, one of the Senate dinosaurs (Chris Dodd) will be defeated in the 2010 primary if a credible and politically visionary Democrat steps up to the plate! (Don’t worry, the majority of the people of CT will never vote for a Repub!)

  7. gazelle1929

    I had a boss once who looked at something I wrote and remarked, “You sure write good.” I immediately began a search for new employment.

  8. gazelle1929

    Nope. Even if you have no tax withheld at all you have no property right to your entire income if the law says a part of it is due to the government as taxes.

    Further, the contract does not control when it becomes taxable income. What determines taxable income and tax year is the date on which it is paid to your or when you begin to exercise control of the money.

  9. almandine

    So what is your point other than banter?

    Bills of attainder, ex post facto laws, the Constitution, etc., were propogated to insure the rights of individuals against the State. Are you fer that or agin it?

    Collectivism is slavery…

  10. gazelle1929

    >So what is your point other than banter?

    To assert that you may well be incorrect in sayng that property laws would work to prevent the taxation of income.

    I choose not to stoop to the ad hominenem level, a stance which you should consider.

    >Bills of attainder, ex post facto laws, the Constitution, etc., were propogated to insure the rights of individuals against the State. Are you fer that or agin it?

    Bills of attainder were not “propogated” (perhaps you may have meant “promulgated”) to insure the rights of individuals against the
    State. Nor were ex post facto laws. They actually served to insure the rights of the State against individuals. I make no comment on the Constitution other than to say that it is what it is.

  11. almandine

    Propagate: (transitive) to generate, produce, or cause to take effect…

    As for the taxation issue… many an argument has been decided thusly, although probably not in this case. It was a “possibility” statement.

    As for the prohibition of bills of attainder and ex post facto laws (which, by the way, are as much related to criminal activity as are bills of attainder)… it was definitely NOT to protect the rights of the State against individuals.

    Collectivism is slavery…

  12. Carl Nemo

    Hi Wecoulddoit…

    “My vote is that we try to anticipate the total impact of the legislation before enacting it…this time!”…extract from post

    I’m with you, along with millions of other tax-debtors. Will they do so, NOPE?!

    I hate to share my angst with you, but our Congressional leaders are terminally corrupt to the “CORE”!

    Carl Nemo **==

  13. almandine

    A “visionary” Dem sounds like a Communist to me. What do you mean it to be?

    Collectivism is slavery…

  14. pondering_it_all

    I don’t believe Congress needs to amend the tax law for the US government to recover the “bonuses”: All we need to do is charge AIG with insurance fraud for writing policies they could not cover. Conviction by any American jury would be a slam-dunk, and then all of their “profits” could be confiscated as the fruits of criminal enterprise.

    We don’t let con men keep the money they swindle away from their victims. We don’t let bank robbers keep their loot. There’s no reason on Earth to let the criminals at AIG keep theirs.

  15. almandine

    “All we need to do is charge AIG with insurance fraud for writing policies they could not cover.”

    An interesting idea, but don’t ever think your auto insurance company would cover all the claims if everyone it insured had an accident at the same time. In fact, if Katrina was any indication, they would all be running for cover and denying coverage for as much as they could for as long as possible. Not that it’s right.

    Collectivism is slavery…

  16. woody188

    The difference here being AIG kept zero capital in reserves to cover these losses. They figured they would not need to so long as the market kept going up. Talk about stupid. Who would believe a market will increase forever? Is this what they teach at Yale and Harvard?

    I believe AIG is being used as a sacrificial lamb to remove anger from the real banks involved in the fiasco. It was too big to save, so we’ll keep it afloat to pay it’s counter-party agreements, and that way we can “hide” some of the bail-out money going to the same 3-4 Federal Reserve board member banks like BofA, Citi, Chase, etc.

  17. almandine

    Maybe so Woody, but my take is that the Europeans and others induced the BIS to force us to cover those counterparty agreements or suffer the international consequences. Clearly, AIG – Fannie and Freddie – and the other too-large-to-fail banks & insurance companies hoodwinked our international “partners” as least as much as they did us. Derivatives and Credit Default Swaps be damned. I think you have called for incarceration of the responsible parties elsewhere… it must be done.

    Collectivism is slavery…

  18. Carl Nemo

    Hi Almandine…

    When you quoted BIS (Bank of International Settlements) I knew at that instant that you were a “deepwater model” when in comes to the understanding of international finance!

    Truly a superb response and one that knowledge based insiders can both appreciate and value.

    Carl Nemo **==