AIG and Our Embarrassing Congress

Steve Chapman
Sunday, March 22, 2009

Congress is outraged. Really, really outraged. Unbelievably, incredibly outraged. And there are certainly grounds for anger.

Not at the insurance company AIG, which paid bonuses that are seen as intolerable, but at Congress, which blithely declined to prohibit them but is now shocked to find AIG doing what it was allowed to do. The Democrats who control Capitol Hill want revenge, as do many Republicans. So the House voted by a 328-93 margin to impose a 90 percent tax on the payments.

In doing so, members resolutely avoided a couple of inconvenient realities. The first is that the fault, if any, lies with the same people who are now angry. The second is that the tax conflicts with the clear intent of the Constitution.

The pending fees were not exactly classified information. "AIG's plans to pay hundreds of millions of dollars were publicized last fall, when Congress started asking questions about expensive junkets the company had sponsored," reports the Associated Press. "A November SEC filing by the company details $469 million in 'retention payments' to keep prized employees."

In January, two House members urged the Federal Reserve and the Treasury to block such bonuses. Last month, the Senate passed an amendment outlawing such payments by companies getting federal bailout funds -- and then dropped it.

The White House was also in the loop. Sen. Chris Dodd (D-Conn.) says that the administration asked him to attach a provision to the stimulus bill that authorized such bonuses. Dodd protests that he only agreed because he didn't understand what the measure would do.

Maybe other people who voted for it in the Senate and House didn't either. Maybe Dodd and the rest ought to read legislation before they approve it.

But if members had any pangs of remorse for their failure, they stifled them in favor of vilifying AIG and its personnel. House Financial Services Committee Chairman Barney Frank demanded the names of employees who "had to be bribed not to abandon the company." Rep. Michael Capuano (D-Mass.) urged that they be fired.

Until these staffers can be publicly tarred and feathered, though, the House will settle for subjecting their bonuses to a 90 percent tax levy -- up from the normal maximum rate of 35 percent. Why not 100 percent? "State and local governments will take the extra 10 percent," said Ways and Means Committee chairman Charles Rangel.

So the bill aims at sanctioning supposedly bad people by confiscating their earnings. As such, it sounds an awful lot like something the Constitution expressly forbids -- a bill of attainder, which is a punishment of particular individuals imposed not by a court of law but by a legislative body.

Many if not most legal scholars believe this furious retribution can be structured to pass judicial review. But not Jonathan Turley, a George Washington University law professor. "I am not so confident that it would pass constitutional muster," he told me. "While courts give Congress great discretion in the tax area, this would require a case of willful blindness."

Turley speaks with special authority on the subject because of a rare achievement: In 2003, he persuaded a federal appeals court that a law passed by Congress was a bill of attainder.

That statute revoked a divorced father's visitation rights because his ex-wife claimed he had molested his daughter -- a charge that courts repeatedly rejected. But it was overturned because the court found the measure, though it didn't name him, was designed to place a severe burden on a specific person deemed to have done something terrible.

Ditto for this legislation. It's aimed at AIG employees who accepted payments guaranteed them by a legal contract, and it's intended to inflict pain to express disapproval of their conduct. Rangel, in fact, had earlier opposed the tax because it would be "punitive." But after voting for it, he explained that "we had very few weapons" to use against the recipients. Taxation as a weapon -- if that's not punitive, what is?

To uphold the tax, says Turley, "the courts would have to ignore the open statements of members of Congress. They have done everything short of burning the AIG executives in effigy on the House floor."

Maybe the people in Congress are smart enough to figure out a way to sneak this act of targeted revenge past the courts. Maybe, in other words, they have more brains than scruples. But so far, they haven't shown much of either.