Attainder For Beginners: A "Grenade" Is Constitutional. A Sniper Rifle Isn't.

Attainder for Beginners
A "grenade" is constitutional. A sniper rifle isn't.
By JAMES TARANTO

The House's vote last week to impose a confiscatory tax on bonuses earned by employees at bailed-out financial institutions led many readers to write us arguing that, or asking if, the legislation is an unconstitutional bill of attainder--a measure imposing punishment through legislation without a trial.

The short answer is probably not, and the reason is that the bill would confiscate bonuses from many employees who are not accused of any wrongdoing or mismanagement.

An example of what does constitute a bill of attainder can be found in a 1946 case, U.S. v. Lovett, in which three specific federal employees whom the chairman of the House Un-American Activities Committee had described as "irresponsible, unrepresentative, crackpot, radical bureaucrats" challenged a law barring the government from paying their salaries--in effect blacklisting them from ever holding a federal job.

In holding the law unconstitutional, Justice Hugo Black wrote that "legislative acts, no matter what their form, that apply either to named individuals or to easily ascertainable members of a group in such a way as to inflict punishment on them without a judicial trial are bills of attainder prohibited by the Constitution."

Last week, however, congressmen were far less precise in choosing their targets, as Bloomberg reports:

The House took several steps to shield the measure from that argument, said Laurence Tribe, a constitutional law professor at Harvard Law School.

The measure doesn't single out employees at AIG and instead uses general language affecting all companies receiving more than $5 billion in federal bailout money. Bonuses for employees at Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley would be affected.

Tribe also pointed to a provision in the measure exempting executives at companies that repay enough bailout funds to reduce the government's investment below $5 billion.

That provision "makes it clear that the goal is not to punish corporate executives generally, but is simply to ensure the appropriate use of government funds," Tribe said in an e- mail.

Among legal scholars, Tribe's view is prevalent but not unanimous. Jonathan Adler, a law prof blogging at the Volokh Conspiracy, quotes one dissenter, Paul Sracic of Youngstown State University:

Congress may have more of a problem with the Bill of Attainder provision than they are admitting. This is because the separation of powers principle that might normally argue for judicial deference may run in the other direction here.

Chief Justice Earl Warren wrote in US. v. Brown (1965) that the basic reason for a Bill of Attainder clause was to prevent "trial by legislature." This is because "the legislative branch is not so well suited as politically independent judges and juries to the task of ruling upon the blameworthiness of, and levying appropriate punishment upon specific persons. "

Congress can always levy a tax that seems punitive to those who have to shell out the money. Legislative motive is therefore crucial to both limiting and to giving teeth to Bill of Attainder analysis. Does anyone think that it would be difficult to prove in court that the overwhelming reason that this bill was passed was to confiscate the ill-gotten gains of those AIG employees who received the bonuses? It is money that is already in their pockets. In this sense then, confiscation of property is being used as a punishment. When Congress does this, it is a Bill of Attainder.

But while Adler sympathizes with Sracic's argument, he doubts it would hold up in court:

It may be generally understood that the tax is motivated by public outrage against the issuance of these bonuses, but it could still be "difficult to prove in court that the overwhelming reason that this bill was passed was to confiscate the ill-gotten gains of those AIG employees." Courts are rightfully reluctant to evaluate legislation on the basis of stray comments made by legislators, particularly if different legislators express different opinions. Key members of Congress have already begun to distance themselves from arguments that the tax is a punitive measure. Rep. Charles Rangel, for instance, argued on Fox News Sunday this morning that the tax is really about protecting taxpayers, and not about punishing AIG execs. Whether we believe him or not, such comments will make it difficult to prove that Congress acted with an illegitimate motive, particularly given the broad deference courts have shown Congress in this area.

Another way of describing this is by way of a simile a Wall Street recruiter used in a comment we noted in Friday's column: "It's like they're throwing a grenade at the problem, hitting the good and the bad at the same time." If Congress instead used a sniper rifle to take out specific individuals alleged to have done wrong, that would unquestionably have been a bill of attainder. The more indiscriminate the destruction Congress wreaks, the more likely its choice of weapon is to pass constitutional muster, at least as far as the bill of attainder clause goes.

The 108% Tax
Reader Jan Sackley writes to take us to task for an omission in Friday's item about the bonus tax bill:

Please don't perpetuate the myth that the bonus excise tax only applies to employees who earn more than $250,000 per year. It also applies to employees who make $25,000 or $30,000 or even only $15,000 if their household adjusted gross income is $250,000 or greater.

Household AGI can include a spouse's earnings or income from investments, which could subject even a relatively low-paid employee to the tax:

A bank branch manager who works her butt off 50 to 60 hours a week for a salary of $50,000, who received an incentive plan bonus in January of $30,000, and who has a husband who is a doctor who makes $200,000, would be subject to the 90% excise tax (plus all the other tax) if they file a joint return.

This would also affect employees of Merrill Lynch, Wachovia, and any other company acquired by a TARP Bank because of the affiliate clause.

It would even apply to the bank janitors, tellers, data entry clerks, computer technicians and others if their spouses happen to be higher paid professionals or they have substantial investments that trigger enough income to get them to that $250,000 AGI. Many of these same employees will see their jobs eliminated later this year if they haven't already because of cut-backs or acquisition trimming. So then there is a double whammy: lose your job AND pay all of your bonus in taxes.

And to top it off, these same bank employees have seen their 401(k)s and employee stock purchase plans diminish to nothing in value and all stock options are worthless.

So now our knee-jerk Congress wants to kick thousands of us in the gut because a few dozen abusers had their contracts honored by AIG.

It gets even worse. On Friday we added in state and local and FICA Medicare taxes for a hypothetical New York City employee subject to the bonus tax and came up with an aggregate tax rate of 101.948%. The rate would be higher still for Sackley's branch manager, who--assuming this is her only payroll income--would pay an additional 6.2% FICA Social Security tax on her bonus. (The Social Security tax applies only to the first $106,800 in payroll income, but it is assessed against individuals, not couples.) This would bring her total tax liability to 108.148%.