Legal + Constitutional Doesn’t Always = Proper

Nate Silver has an excellent post about what Congress may or may not do about AIG and other firms taking taxpayer dollars.  The Senate has a bill to tax 98% of  bonus money.  The House is looking at taxing 100% of bonus money over $100,000. 

There’s been some discussion about whether levying a tax of this nature would be legal, or instead would represent an unconstitutional bill of attainder. Lawrence Tribe of Harvard Law School says the bill would probably pass constitutional muster, although the answer is less than 100 percent clear.

I’m not sure that’s the whole crux of the matter, though. Among the most basic duties of a functioning government is to uphold contracts. The “retention” bonuses paid to AIG executives were almost certainly bad contracts from an economic point of view, but legally they may be just as valid as any others (I qualify this statement only because we haven’t actually seen the contracts). If the government passes a tax of this nature, it is not only failing to protect those contracts but is actively seeking to circumvent them.

As Silver points out, Congressional intervention in the Terry Schiavo case was also probably constitutional, and yet a huge government overreach that, at the very least, undermined the rule of law.

When historians look back on this period, this is not likely to be seen as one of our prouder moments. Moreover, I wonder if it does not augment the view that the financial crisis was perpetuated by a few bad apples, when the real causes were far more systemic, and systemic reform will be required avoid their recurrence. If the public needs some way to crucify CEOs and other high-paid executives who had their fingers on the button when the economy went to hell, let’s at least find a way that doesn’t tempt fate with the rule of law.

It would certainly feel good to deny officers and employees of certain companies their bonuses as they take government money.  But is the government setting a good example by overturning contractual obligations in the process of doing what seems popular at the moment?

By: Alan

Alan Colmes is the publisher of Liberaland.