Blumenthal: taxing TARP bonuses ‘likely constitutional’

bill backed by 19 Senate Democrats that would tax executive bonuses is “likely constitutional”, Attorney General Richard Blumenthal said today.

The bill would affect employees who earned bonuses in excess of $1 million from eight firms in Connecticut that received money from the federal bailout last year known as the Troubled Asset Relief Program.

Critics, including Republicans and some in the business community, say it illegally singles out employees of certain firms, and violates due process by applying a tax retroactively.

But Blumenthal said the tax is within the state’s taxing authority, and the U.S. Supreme Court has repeatedly upheld retroactive taxes.

“The proposed legislation is likely to survive constitutional scrutiny,” he said.

Several proposals have been made in Congress to tax these bonuses with no success, and the Congressional Research Service said the tax is vulnerable to being found unconstitutional for a number of reasons.

Senate President Pro Tem Donald E. Williams, Jr. of Brooklyn estimates the 3 percent tax surcharge would bring in about $30 million and allow the state to eliminate the $250 annual business registration tax for 46,000 small businesses.