The AIG Tax Trojan Horse

The massive tax hike being voted on in the House today is a Trojan horse that uses the legitimate outrage over the American International Group bonuses to hit a wide variety of employees, and would be a serious blow to the economic growth we are trying to revive.

The bill would levy a 90 percent tax on bonuses of any employee, with some exceptions, whose family income is more than $250,000 and who works for a company receiving funds from the Troubled Asset Relief Program. The tax would hit regardless of the employees’ role in creating problems in the financial system. And many well-managed banks were practically forced by regulators and former Treasury Secretary Henry Paulson to take TARP money so the seriously troubled banks wouldn’t face a stigma.

CEI opposed the creation and further extensions of the TARP, and we want the money paid back to taxpayers as soon as it can be, and also the government to give up its stock ownership as soon as possible, to end the partial nationalization of the financial system.

But using the tax code to punish these firms’ employees is seriously wrongheaded. Many firms, unfortunately, have received government subsidies even before the TARP was created. Sports teams frequently receive subsidies for new stadiums, but we don’t tax athletes at 90 percent! We should end government subsidies to all these firms, but not punish individual employees who compete for the salaries the market will bear.

The tax system is not the way to remedy an ill-conceived bailout. There is no way to separate firms receiving government money from the economy as a whole. This is a big foot in the door for confiscatory taxes that will produce anemic economic growth.

Furthermore, by targeting employees of individual firms with punitive taxes, this may be an unconstitutional “bill of attainder.” The Constitution is very clear that only the courts, not the legislative branch, can single out individuals for punishment.

Rep. Sheila Jackson Lee*, Democrat of Texas, said on the House floor today that she was aware that the bill might be subject to “constitutional challenge” but was going to vote for it anyway. She and possibly other supporters of the bill overlook that members of Congress, as well as the courts, take an oath to uphold the Constitution. If members have any doubts about the constitutionality of a bill, they are violating their oath by voting for that bill before resolving these doubts. This is one of many reasons why this ill-conceived legislation should go down.

*UPDATE: A previous version of this post misidentified the Member of Congress is question.