Thursday, March 26, 2009

Bonus Tax Unconstitutional?

Richard Epstein makes the case that the AIG bonus tax is unconstitutional, but that the Supreme Court will not be likely to see it that way. A snippet:

Thus any sensible system of limited government should consider the proposed bills unconstitutional. Special taxes on some forms of income (but not others) and retroactive taxes put in place after business transactions are complete both merit strong condemnation. The bills in Congress are rife with both elements.

Nevertheless, a constitutional attack against any such law that might emerge faces an uphill battle. Since the New Deal, if not earlier, the courts have allowed Congress and the states to decide which economic activities to tax, and how.

Two basic principles that animated our Constitution appear to have no traction today. One holds that property is the guardian of every other right. The second asserts that voluntary exchange is the source of general peace and prosperity. Today's Supreme Court looks to neither principle for guidance.


Robert Harris said...

If you hold the point of view that these taxes are legally punitive (which they are, of course - who knows what a court would say), then this (a) is an ex post facto law (b) is practically a bill of attainder and (c) nullifies private contracts without sufficient reason. The first two things are explicitly forbidden in the Constitution. So of course it's unconstitutional.

Philip said...

Agreed. Unfortunately, our esteemed Supreme Court Justices don't always appreciate the spirit (or letter) of our founding document.

Anonymous said...


Fletcher v. Peck heard before the Supreme Court in 1810.

Scope: The corrupted state legislature of Georgia passed a bill that parceled millions of acres of Georgia's land and sold it to private speculators for mere pennies. The citizens of Georgia, who learned of this bill after the fact ousted the state legislators in the following election. The new state representatives repealed the bill, which nullified the contracts and called for the return of the land to Georgia. Decision: "the Supreme Court ruled that a grant to a private land company was a contract within the meaning of the Contract Clause of the Constitution, and once made could not be repealed. In addition to establishing a strict interpretation of the Contract Clause, the case marked the first time the Supreme Court struck down a state law on constitutional grounds."

Philip said...
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Philip said...

Good point, Anonymous.