Capital Markets

The Bonus Bills Suck, but Are They Unconstitutional?


In today's Wall Street Journal, University of Chicago law professor Richard Epstein asks, "Is the Bonus Tax Unconstitutional?" Unfortunately, he does not actually answer that question. He says the retroactive confiscation of AIG bonuses probably would be upheld by the courts, given the relevant Supreme Court precedents. It is not a constitutionally proscribed "bill of attainder," because it applies not just to AIG employees but to people working at other firms receiving bailout money. And the Supreme Court has unanimously ruled that Ex Post Facto Clause does not apply to tax laws. Epstein says the two most promising approaches in the current legal environment would be "substantive due process" or the Fifth Amendment's Takings Clause, but he is not sanguine about the prospects for either. Yet he concludes that "if Congress doesn't stop its descent into the abyss, the Court should confess its past sin of constitutional passivity and stop it for them." He writes:

The AIG bonuses were made pursuant to valid contracts entered into before the receipt of the bailout money. They were ratified in the legislation that provided for the bailout, and efforts to find loopholes in these contracts have proved unavailing.

Thus any sensible system of limited government should consider the proposed bills unconstitutional.

But I can't tell from the essay which constitutional provision Epstein thinks should be understood to bar the bonus tax. Maybe he's suggesting that the Ex Post Facto Clause was intended to cover tax laws, although the Supreme Court has ruled otherwise. Or maybe he's saying taxes count as "takings" (which would be weird, because then what would constitute "just compensation"?). Or maybe he's saying the Due Process Clause should be read broadly enough to forbid this sort of thing, although that raises difficult questions about how to apply the clause in a constrained, principle way.

Don't get me wrong. I think the bonus grab is terrible policy: impulsive, irrational, unjust, and counterproductive, simultaneously undermining economic confidence and the rule of law. I'd like to believe it's also unconstitutional. But I've yet to hear a persuasive explanation of why, and Epstein's essay makes me think there may not be one.