	H.R. 1586 and S. 651 would impose special taxing rules on bonuses paid to employees of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and certain entities that receive assistance from the federal government under the Emergency Economic Stabilization Act of 2008 (EESA) ( P.L. Under H.R. S. 651 , rather than taxing the bonuses as income, would impose an excise tax on both the employee and entity. Both bills would apply to bonuses received on or after January 1, 2009, in taxable years ending on or after that date. 1586 was passed by the House on March 19, 2009, by a vote of 328 to 93. No legislative action has yet occurred with respect to S. 651 . Possible arguments include that the bills violate the equal protection and due process requirements of the Fifth Amendment, are takings for purposes of the Fifth Amendment, or violate the prohibitions against ex post facto legislation and bills of attainder. 1586 and S. 651 are not punishment for purposes of the ex post facto clause. The two main criteria which the courts look to in order to determine whether legislation is a bill of attainder are (1) whether specific individuals are affected by the statute (specificity prong), and (2) whether the legislation inflicts a punishment on those individuals (punishment prong). Under H.R. 1586 , the bonuses would be taxed as income to the employee at a rate of 90%. Thus, the question arises as to how these bills would be evaluated under the specificity prong of a bill of attainder analysis. H.R. The Court has also identified three types of legislation which would fulfill the "punishment" prong of the test: (1) where the burden is such as has "traditionally" been found to be punitive, (2) where the type and severity of burdens imposed cannot reasonably be said to further "non-punitive legislative purposes," and (3) where the legislative record evinces a "congressional intent to punish." As confiscation of property has been found to be a "traditional" punishment under the first of these categories, the closer that a tax rate gets to 100% on past income, the more likely that this might be seen by a court as rising to the level of punishment. Although the level of tax in both bills appears to be set high enough to deter a class of future bonuses from being granted, this regulatory purpose cannot be logically applied to situations where the bonuses have already been paid. Thus, the other remaining traditional purpose for taxation, the raising of revenue, appears to be the most logical remaining non-punitive regulatory purpose for the statute. A review of the legislative history established so far, however, would not seem to indicate that raising revenue was a primary purpose behind the proposed bills. Rather, the legislative history seems to contain comments that would indicate the existence of a congressional intent to punish those individuals receiving bonuses. Consequently, it would appear that while both of these bills may raise constitutional issues, H.R. 1586 would raise the most serious constitutional concerns.
There has been significant controversy about the constitutionality of the legislative proposals (H.R. 1586 and S. 651) to tax bonuses paid to employees of entities receiving assistance from the federal government under the Emergency Economic Stabilization Act of 2008. Under H.R. 1586, the bonuses would be taxed as income to the employee at a rate of 90%. S. 651 would impose an excise tax equal to 35% of the bonus on both the employee and entity. Both bills would apply to bonuses received on or after January 1, 2009, in taxable years ending on or after that date. H.R. 1586 was passed by the House on March 19, 2009, by a vote of 328 to 93. No legislative action has yet been taken on S. 651.
This report analyzes the constitutionality of these bills. Specifically, it examines whether their retroactive application violates the equal protection and due process guarantees of the Fifth Amendment, rises to the level of a taking under the Fifth Amendment, or violates the prohibition on ex post facto laws and bills of attainder. It reaches the conclusion that while certain aspects of the proposed taxing schemes (particularly, the 90% rate in H.R. 1586 and statements in the legislative history targeting specific taxpayers) may raise concerns under the Fifth Amendment and ex post facto clause, the strongest arguments against their constitutionality seem to arise under the bill of attainder analysis.
The two main criteria that the courts will look to in order to determine whether legislation is a bill of attainder are (1) whether specific individuals are affected by the statute ("specificity" prong), and (2) whether the legislation inflicts a punishment on those individuals ("punishment" prong). The Supreme Court has identified three types of legislation which would fulfill the "punishment" prong of the test: (1) where the burden is such as has "traditionally" been found to be punitive, (2) where the type and severity of burdens imposed cannot reasonably be said to further "non-punitive legislative purposes," and (3) where the legislative record evinces a "congressional intent to punish."
Although the bills would apply both prospectively and retrospectively, they would both appear to meet the "specificity" prong. This is because each bill would apply, in part, to a specified group of people, identified by past conduct, who cannot meaningfully withdraw from that group. As to the "punishment" prong, confiscation of property has been found to be a "traditional" punishment. Thus, the closer that a tax rate gets to 100% on income already earned, the more likely that such a tax would be seen by a court as rising to the level of punishment. Also, the deterrence of granting or receiving future bonuses would not appear to be an applicable regulatory purpose where bonuses have already been paid. Thus, the most logical remaining non-punitive regulatory purpose for the statute would appear to be revenue raising. A review of the legislative history established so far, however, seems to indicate that raising revenue is not a primary purpose behind the proposed bills. Rather, the legislative history seems to contain comments that would indicate the existence of a congressional intent to punish those individuals receiving bonuses. Consequently, while both of these bills may raise constitutional issues, H.R. 1586 raises the most serious constitutional concerns.