MISUSE OF THE POWER TO TAX

There are two basic powers which are essential to any government - the power to tax, and the power to raise troops. In a recent Notes, I mentioned that often tax laws are passed for purposes other than raising revenue, and this factor makes it impossible to simplify the tax law.

Often when legislation runs off the rails, it is because it is being driven by a loco motive. Using a tax law to punish people is such a loco motive.

A recent tax bill would impose a 90% tax on those who were paid bonuses if their families earned more than $250,000 annually and their employers, such as A.I.G, received federal bailout money. The bill passed in the house by a 328 to 93 majority.

If it became law, the bill would probably be unconstitutional. Article I, Section 9 of the Constitution provides that "No Bill of Attainder or ex post facto Law will be passed."

The bill of attainder appeared in English law 700 years ago. If a writ or bill of attainder was issued against someone, he or she lost their civil rights, their property was "tainted" and forfeited to the Crown, and they were executed - all without a trial or any kind of judicial process.

People are properly upset by the apparent excesses in the financial industry, particularly since enterprises failed and we have to bail them out. Bonuses paid to some A.I.G. employees may have been too generous, but imposing a confiscatory tax on everyone (including many employees who were clearly entitled to their compensation) is not the way to go.

The bonuses were paid under contracts entered into before the bailout. Singling out a particular group of people and seeking to punish them by taxation in this fashion interferes with their contractual rights and probably violates the Constitution.

If the bill should become law it will result in litigation. Not only does it appear to be a bill of attainder, but also appears to violate the prohibition of ex post facto laws. An ex post facto law changes an action that was lawful when it was done to make it unlawful, retroactively.