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Monday, March 23, 2009

The House, the Constitution, and the 90% Bonus Tax

As I’ve made perfectly clear throughout my career as an economist and policy analysis, I am not a fan of government bailing out private businesses. Taxpayer dollars are thrown away, the size and reach of government expands, moral hazard is created, and the entire market system is undermined.

And of course, whenever government sticks its nose into something, along with it comes politics.

Last week, the U.S. House of Representatives served up politics at its most pandering. It voted by 328-93 to approve a 90% surtax on bonuses to employees earning more than $250,000 at companies that received at least $5 billion in government financial rescue dollars. The bill would set up the tax retroactively to December 31, 2008, and was generated in response to outrage over bonuses handed out at AIG, which has been one of the government’s biggest bailouts.

There are a good number of reasons to oppose this political fit by members of the House.

But one supersedes all others. It is plainly unconstitutional. Article I, Section 9 of the U.S. Constitution states: "No Bill of Attainder or ex post facto Law shall be passed." Quite simply, Congress cannot impose legal consequences without a trial, nor after an event took place.

Incredibly, U.S. Rep. James Clyburn, the Democratic Majority Whip, appeared on CNBC on the morning of March 23, and justified the vote by saying that they would leave it to the courts to figure out if the measure was constitutional. He actually said: “But we will respond to the American people with our votes, and that’s what we did, responded to the American people’s anger and that emotions, we voted to tax this, knowing full well that it could end up in court and may even be consider unconstitutional.”

Not a great moment in American legislative history.

And it has to make people wonder – including business owners and investors – what this Congress is capable of doing in terms of policies impacting business and our economy.

By the way, with no bailouts in the first place, we would not be having this discussion.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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