AIG Bonus Tax Is Unconstitutional – Don’t Add To Taxpayer’s Expense Playing CYA

Check my prior posts. I’m against bailouts – all of them.

The bonuses are outrageous. They should never have been paid. To AIG or any of the other 2 dozen companies who accepted Taxpayer Funding.

The Administration has known about the most recent AIG bonuses for months and should have eliminated them before any additional Taxpayer money was handed out. The White House, Treasury and Congress had the chance to do so …. but they did not. Instead they crafted a law that specifically allows the payment of the bonuses they now want to tax – they crafted this behind closed doors, without debate, in the dark of night – Now in the light of day, they stomp their feet and yell.

I’m mad as hell about the bonuses and at Congress for their incompetence and hypocrisy – that said, another wrong does not make things right. Throwing out the Constitution and violating another dozen or so legal concepts is not the path we want to travel.

Not only is it the wrong thing to do – doing so will only cost the Taxpayers $100’s of millions of additional dollars and in the end the bonuses will still be paid.

What do we need to do – remember this incompetence at the next election – Fool me once, shame on you. Fool me twice – NO CHANCE.

Congress Invites Court Challenge With AIG Taxation Plan  

Legal scholars warn that Congress could have a tough time defending itself in court if it tries to tax away the AIG bonuses. 

Lawmakers outraged over the AIG bonuses have told the people who got the money to watch out — the government will get it back one way or the other, even if it means taxing the heck out of their paychecks. [“One way or the other” – how the hell did these people get elected. They had legal ways to do this, ways that were Constitutional – they failed to do so.  Now they are willing to violate ther oaths to “protect and defend the Constitution” as part of their mock outrage! We the people deserve better] 

But legal scholars say Congress will have a tough time defending itself in court if it goes down that road. 

Not only would Congress be retroactively meddling with contractual agreements, they say, but it would be passing laws that would essentially target a specific group of employees. [One of the Bill’s sponsors, a Congressman from Michigan named Peters proudly but ignorantly admits exactly this – and they wonder why Michigan is in the shape it is in]

Jonathan Turley, George Washington University law professor, said targeting those employees through taxes would invite a valid court challenge. 

“It could well trigger years of litigation,” he said. “Just because a company or individual is unpopular does not mean the government can retroactively impose punitive measures against them. … There’s a host of difficult contractual and constitutional and statutory barriers that would have to be overcome by Congress.” 

Two of those difficulties, lawyers say, lie in Article I of the U.S. Constitution — a section stating Congress cannot pass any “Bill of Attainder” or “ex post facto” law. 

A Bill of Attainder is an act of the legislature that singles out and punishes a group or individual without trial. An ex post facto law retroactively changes the legal consequences of an act. 

“It’s a Bill of Attainder. It can’t be done,” Sen. Judd Gregg, R-N.H., told FOX News when asked about proposals in the Senate to tax AIG. 

President Obama even warned Wednesday about the possibility of a costly court battle over the $165 million in bonuses. [As a Harvard trained Attorney, why doesn’t he, Obama, point out that the law he would be asked to sign, should it pass through the Senate as it has the House, would, upon reaching his desk, not be signed, because he, Obama, as President, would not violate the Constitution, even if a majority of the Senate & House would]

“We are exploring every possible avenue, as is Congress, to see what we can do. But what we need are tools that allow us not to find ourselves in a situation where we only have two options,” Obama said. “One is to withhold money from AIG that could potentially lead them into a spiral that could affect the entire financial system. Or, on the other hand, having folks get bonuses and at least have the capacity to sue the government and get not only their bonuses but potentially even more out of the legal system.” 

Treasury Secretary Timothy Geithner wants to require AIG to pay back the money to the government and deduct that amount from the $30 billion bailout commitment, as well as subject future bonuses to tough restrictions. 

Click here for a PDF of the AIG bonus plan, from Findlaw.

Democrats on the Hill, though, have discussed a range of options for recovering the money that involve heavy taxes. 

Ten House Democrats introduced a bill Tuesday to tax all bonuses above $100,000 at 100 percent to recoup all the “outrageous” AIG bonuses. House Speaker Nancy Pelosi said in a statement that recouping a “substantial portion” through taxation is one of several viable possibilities. 

And Rep. Charlie Rangel, the Democratic chairman of the tax-writing House Ways and Means Committee, authored a resolution that would place a 90 percent income tax on bonuses for employees with family incomes above $250,000 for firms, like AIG, that received at least $5 billion in bailout money. [This is the version passed by the House this PM – again, this action, like so many of the troubling actions of the past months, was doen in haste, without full debate or hearings – things assocaited with the deliberative process in most Democracies] 

Initially, Rangel said he was uncomfortable with the idea of meddling with the tax code as a solution to the AIG problem, but he told FOX News he “had an obligation to respond to the fears and anger of the people.” [What happened to his duty to defend and uphold the Constituition – he sworn an oath to do one – the other obligation seems to be closely tied to the presence of TV cameras]

Senate Majority Leader Harry Reid also said Tuesday that legislation being crafted by Senate Finance Committee Chairman Max Baucus, D-Mont., would subject the bonuses to a tax of more than 90 percent. 

Sen. Chuck Schumer, D-N.Y., said, “If (AIG CEO Edward) Liddy does nothing, we will act and will take this money back and return it to its rightful owners, the American taxpayers. We will take this money back by taxing virtually all of it. [Wasn’t Shumer the Senator who said the American people just didn’t care about these little spending items, a million here and a miillion there, they just don’t care]

“So let the recipients of these large and unseemly bonuses be warned. If you don’t return it on your own, we will do it for you.” [So I assume we can all agree what Congress’ obvious intent is in passing this “tax’ – because that is exactly what the AIG employees will ask the Court to do]

Liddy told a House committee Wednesday that some employees have volunteered to give some of their bonus money back. 

But he reminded lawmakers that the employees have a legal right to keep the bonuses. 

Robert Sedgwick, an executive compensation attorney, told FOX News he doubts the government could successfully tax all that money back. 

“There’d be a series of constitutional issues in attempting to do it in that way,” he said. 

Meanwhile, the Connecticut state legislature is dealing with another legal conundrum, as AIG apparently claims it is legally obligated to pay its bonuses because of provisions in the Connecticut Wage Act. 

AIG cites Connecticut law because the company’s Financial Products division, the embattled unit that is receiving the bulk of the money, is located in the state. Part of the Wage Act states that employees who are improperly denied their wages can recover twice that amount in court. [Plus Attorney Fees, Costs and Interest]

Connecticut lawmakers slammed AIG for citing the law — Gov. M. Jodi Rell called it “contemptible” — but said they would change the act in response. A draft proposal, pushed by House Republican Leader Larry Cafero and other lawmakers, would add provisions exempting companies that receive bailout money. [Yes, but how do you argue that you are not trying to “retroactively” change a law – when it is obvious that is what is being done] 

Cafero spokeswoman Pat O’Neil said they’ll try to take up the bill next week, but it’s unclear whether it could have any effect on past contracts. He said lawmakers want at least to prevent AIG from using Connecticut law as an excuse for paying bonuses in the future — since another $230 million in bonuses is in the pipeline for this year, though Liddy has said he will reduce those. [Reduce? Reduce? There is nothing retroactive about clearly stating in writing- “either surrender the bonuses or there will be no, absolutely no, additional Government funding” and have an agreement executed in advance]

“We want to remove from their quiver this argument that they have no choice but to use Connecticut law against us as justification for this reprehensible behavior,” O’Neil said. [Stop with the CYA already – they don’t need Connecticut Law – the bailout agreement as worded by Congress, specifically allows for these bonuses – AIG employees who want to keep the money are not violating any law – they are acting within the terms of the agreement passed by Congress – So just stop the CYA]

Turley said Connecticut, like Washington, would probably have a tough time trying retroactively to apply the new standards to an old AIG contract. 

Turley said the AIG employees who received bonuses have every incentive to keep the money by whatever means possible — even if that means exposing their identities to public scorn in the courtroom. 

“Their prospect of gainful employment is virtually nil, so these people are not going to go quietly into the night,” Turley said. “These people are already as popular as Ebola. They have little incentive to return a million dollars or more.”

One Response

  1. […] Rational Thinking About Our World added an interesting post on AIG Bonus Tax Is Unconstitutional – Donâ […]

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