Bonus Taxes: Constitutional or Not?

Questions remain as to whether or not it's good public policy, but if Congress moves forward with a plan for a 90% tax on bonuses from certain corporations benefiting from federal funds, would such a plan be constitutional? Citing case law, Booman Tribune says yes, the plan would be constitution, if it could be shaped as not punitive to a specific group of people.

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 §2057's original enactment and established a modest retroactivity period that extended only slightly longer than one year.

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