Did the House pass an ex post facto law this afternoon when it imposed a 90% tax on bonuses for people employed by TARP-fed corporations? A lot of people seem to think so, but I think the matter was settled in 1994 with the United States v. Carlton case. In essence, the government had passed a tax law and then immediately realized that it created an unwanted loophole that would cost the government $7 billion in revenue. They passed a retroactive fix and the Supreme Court ruled that it was constitutional.
Held: The 1987 amendment’s retroactive application to Carlton’s
1986 transactions does not violate due process. Under the applicable standard, a tax statute’s retroactive application must be supported by a legitimate legislative purpose furthered by rational
means. See, e.g., Pension Benefit Guaranty Corp. v. R. A. Gray &
Co., 467 U.S. 717, 729-730. Here, Congress’ purpose in enacting
the 1987 amendment was neither illegitimate nor arbitrary. Section 2057 was originally intended to create an incentive for
stockholders to sell their companies to their employees, but the
absence of a decedent stock ownership requirement resulted in the
deduction’s broad availability to virtually any estate, at an estimated loss to the Government of up to $7 billion in anticipated
revenues. Thus, Congress undoubtedly intended the amendment
to correct what it reasonably viewed as a mistake in the original
provision. There is no plausible contention that it acted with an
improper motive, and its decision to prevent the unanticipated
revenue loss by denying the deduction to those who made purely
tax motivated stock transfers was not unreasonable. Moreover, the
amendment’s retroactive application is rationally related to its
legitimate purpose, since Congress acted promptly in proposing the
amendment within a few months of ยง2057’s original enactment and
established a modest retroactivity period that extended only slightly longer than one year.
I think that settles it. But there is still the possibility that today’s law is a Bill of Attainder. In other words, it can be argued that the law is punitive and that it is aimed at a group of persons. You can’t pass laws that punish targeted individuals without the benefit of a trial. The law might be generalized enough to survive this challenge. Alternatively, the Court might decide that taxing the crap out of people isn’t punitive.
