Is 90% Punitive Tax Aimed at AIG Bonuses an Effective Deterrent or Unconstitutional Weapon?
The new punitive tax bill that is intended to recoup bonuses paid by the federal relief money is absolutely legal, despite detractors who say the law can be construed as unconstitutional for targeting specific groups like AIG.
The legislation would tax 90% of the amount received from any institution that took at least $5 billion in taxpayer aid. And from the looks of things, the only reason the bill isn’t taxing 100% of the bonuses is to leave 10% for the states to take.
Is it bad tax policy?
It’s certainly unnerving to think of this narrowly targeted law as a weapon. And how effective will it be in the end as a deterrent? Are we better off just nullifying the bonuses?
There is definitely precedent for assessing punitive taxes for objectionable behavior, and this tax would be very similar to the excise tax levied on corporate raiders in conjunction with greenmail. And since there is so much outrage across the nation over the use of federal aid money to pay out corporate bonuses, the legislation has a good chance of passing in Congress and could help prevent further abuses while stimulating morale.
Nevertheless, it is still bad tax policy as it is aimed at a certain group of people, which some lawyers and Law School Professors will tell you – if you read the constitution – is unconstitutional. Ultimately the courts will decide after someone files a lawsuit against the government, which ultimately would be very costly.
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