Both 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. 110-343 ). Under H.R. 1586 , the bonuses would be taxed as income to the employee at a rate of 90%. S. 651 , rather than taxing the bonuses as income, would impose an excise tax on both the employee and entity. Each would be taxed on the bonus at a rate of 35%. The excise tax would be in addition to the regular income tax (which has a highest marginal tax rate of 35%); thus, the effective tax rate on the bonus would exceed 35% for employees whose bonuses were also subject to the income tax. 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 occurred with respect to S. 651 . The following table compares some of the significant features of the two bills. The fact that both bills apply retroactively (at least partially) to payments that have already been received may leave them open to constitutional challenge. 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. Some could argue that the bills raise equal protection concerns under the Fifth Amendment by targeting certain taxpayers for the unfavorable tax treatment of bonuses. Under this argument, H.R. 1586 , which applies to fewer entities than S. 651 , could be more constitutionally suspect. In general, classifications made for federal tax purposes are constitutionally permissible so long as "they bear a rational relation to a legitimate governmental purpose." The same standard applies in situations involving retroactive tax legislation. The rational basis test is a low standard of review by the courts. Courts typically show great deference to the tax classifications made by legislatures in recognition of "the large area of discretion which is needed by a legislature in formulating sound tax policies." As the Supreme Court has noted, "[i]t has … been pointed out that in taxation, even more than in other fields, legislatures possess the greatest freedom in classification." Because legislatures have "especially broad latitude" in creating tax classifications, the bar is low for Congress to adequately justify its rationale for making the classifications in either bill. One could argue that H.R. 1586 and S. 651 are atypical tax legislation and, therefore, the traditional deference to a legislature's choice of classification may not be appropriate. Tax classifications are usually given deference because they are "a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden" and it is inappropriate for a court, which is not in a position to be familiar with these things, to second guess the legislature. It could be argued that this rationale is not present here, as the legislative history of the bills (particularly H.R. 1586 ) may evidence a punitive intent, aimed primarily at one company, that is not typically seen in tax legislation. Under this argument, these expressed motivations targeting specific taxpayers may lead a court to question the legitimacy of the government's interest. This argument may be stronger for H.R. 1586 , where the legislative history containing statements targeting one company is more developed, the bill applies to fewer entities, and the 90% rate may be reaching confiscatory levels (arguably making the proposal look less like a tax and more like punishment). On the other hand, courts may be reluctant to adopt this analysis in light of the fact that both proposals apply broadly to companies receiving a threshold amount of taxpayer money (i.e., the bills are not limited only to companies mentioned in the legislative history). A court searching for an adequate justification for the bills and their classifications that is independent from any desire to target a select group of bonus recipients and payors would likely consider the bills' legislative history. While the intent behind the legislation may not yet be fully articulated (only one House has considered a bill and there are no committee reports or hearings), possibilities include the traditional revenue-raising purpose associated with tax legislation and the imposition of additional regulatory restrictions on the compensation paid by entities receiving federal assistance. Either purpose may be able to justify the classification. For example, if H.R. 1586 was found to have a regulatory purpose, then the $5 billion threshold may be reasonable under the theory that regulatory concerns are heightened in cases of entities receiving a significant amount of government funds. Thus, the question of whether these bills violate the equal protection guarantees of the Fifth Amendment may turn on whether the bills and their legislative history support this or a similar interpretation. Both bills apply to bonuses received on or after January 1, 2009, in taxable years ending on or after that date. Some could argue that the bills violate the due process clause of the Fifth Amendment because they apply to some payments that have already been received and some that may have been arranged for under contracts entered into prior to 2009. The standard used to determine whether retroactive tax legislation violates substantive due process is whether the retroactive application is "supported by a legitimate legislative purpose furthered by rational means." As discussed above, rational basis is a low standard of review by the courts. Once it is met, "judgments about the wisdom of such legislation remain within the exclusive province of the legislative and executive branches…." Thus, the threshold is low for Congress to adequately justify its rationale for the bills' retroactive application. One potential issue, in light of certain statements in the legislative history indicating an intent to punish certain taxpayers, may be whether Congress acted with an "improper motive" or "illegitimate []or arbitrary" purpose in giving the taxing schemes retroactive effect. The retroactive extent of the bills (back to January 1, 2009) seems constitutionally permissible. Tax legislation that is retroactive to the beginning of the year of enactment has routinely been upheld against due process challenges. While due process concerns may be raised by a more extended period of retroactivity, the Supreme Court has deemed the modest retroactive application of tax laws a "customary congressional practice" required by "the practicalities of producing national legislation." Furthermore, the fact that taxpayers may have concluded a transaction (e.g., entered into employment contracts) in reliance on prior law is generally not important to the analysis as "reliance alone is insufficient to establish a constitutional violation." As the Court has stated, "[t]ax legislation is not a promise, and a taxpayer has no vested right in the Internal Revenue Code." Additionally, lack of notice of the retroactive effect of a tax law is not dispositive of whether due process has been violated. Lack of notice may be a concern when the retroactive legislation enacts a wholly new tax, as indicated by the Court in two cases striking down retroactive application of the law enacting the gift tax. In such a situation, the taxpayer has "no reason to suppose that any transactions of the sort will be taxed at all." Here, the amendment to the federal income tax laws made by H.R. 1586 would not be characterized as a wholly new tax. There may be a stronger argument for describing the excise tax in S. 651 as a new tax, but it arguably falls within the pre-existing framework regulating employee compensation and, therefore, is not as remarkable as the creation of the gift tax. Thus, it is unlikely that the lack of notice would be found to violate due process. It is unlikely that the tax imposed by the bills would offend the Takings Clause of the Fifth Amendment. Since the 19 th century, the Supreme Court has ruled that the sovereign's taxing power and its power to take private property upon payment of just compensation are distinct. As the Court said in 1880, "neither is taxation for a public purpose, however great, the taking of private property for public use, in the sense of the Constitution." More recently, the Ninth Circuit noted that the rule that taxes do not effect takings is "well established." H.R. 1586 imposes a tax at a 90% rate, while S. 651 contemplates multiple taxation of the bonus income, such that for high-income individuals paying the highest current marginal income tax rate (35%), the compound tax rate may be as high as 70%. Even these high tax rates, standing alone, would be unlikely to affect the no-taking conclusion. As the Supreme Court quote above notes, "however great" the tax, it is not a taking. While it may be pointed out that the Court has never addressed a 100% tax, the 70% compound rate contemplated by S. 651 is almost certainly permissible. The 90% tax, however, while closer to a 100% tax, which may be confiscatory, is not unprecedented. During World War II, the marginal federal income tax rate on income over $200,000 was 94%, and for several decades after the war the highest marginal income tax rate was 90%. Research, however, reveals no reported takings challenges to such high rates. The fact that the bills would tax bonus payments made before they were enacted does not indicate a taking where, as here, the retroactivity does not exceed one year. Most of the retroactivity challenges to taxes have been litigated on a substantive due process rather than takings theory, and, as discussed above, the courts consistently finding that retroactivity for modest periods does not offend due process. The Supreme Court has indicated that, at least for economic legislation, an enactment that does not offend due process is highly unlikely to offend the Takings Clause.