Forgetting Bipartisan Pledges

Recently, President George W. Bush dusted off one of the lesser-known items in his campaign platform: a new tax on lawyer's fees. Modeled on the "excess benefit" taxes for executives of non-profits, the proposal would tax lawyers' fees at a rate substantially higher than the standard income tax whenever the fees are paid by a state or local government and the fee is above a "reasonable amount." The lawyer tax has been a popular idea in Republican circles for years--Sen. John S. McCain (R-Ariz.) made a similar proposal in 1998--and was part of Bush's larger tort-reform package. Unfortunately, rather than balance the playing field in any meaningful way, the lawyer tax represents a clear example of arbitrary, discriminatory and politically motivated taxation whereby the ruling party attacks its enemies through the tax code.

The most significant impetus for the lawyer tax has been the billion-dollar fees paid as a result of the nationwide tobacco settlement between a number of states and the tobacco industry. The settlement compensates the states for the damage caused by cigarettes to their citizens' health to the tune of $200 billion over 25 years. As a result of the huge payout, the lawyers who represented the states in these cases and who negotiated the settlement stand to collect fees of more than $10 billion over the next 20 years. Bush's proposal, which has not yet been introduced in Congress, aims to take a substantial portion of those fees and give them back to the states.

If Bush's goal is merely to transfer money from rich lawyers to cash-strapped state and local governments, then the government already has the remedy: a progressive income tax. No clear social goal is advanced by a lawyer tax: Why would the government wish to discourage states and municipalities from hiring lawyers? Other specific taxes, such as on alcohol or tobacco, at least intend some social benefit beyond just adding revenue to the treasury. Absent an overriding social goal, to single out one group for confiscatory taxation would be a simple abuse of government power.

It would also fly in the face of every Republican pronouncement of faith in the free market. The lawyers negotiated their contracts with the states, and those contracts should be respected. Those who took on the tobacco litigation, a novel and risky enterprise, did so without any promise from the states that they would be compensated. Furthermore, the lawyers involved were always clear about the percentage of the settlement they would receive if they won the case. No one has alleged that the lawyers defrauded the states, only that the compensation agreed to in advance by both the lawyers and the states now seems, in retrospect, excessive.

So do defense contracts for $500 screwdrivers--but Bush has not yet proposed an excess benefit tax on the defense industry, mainly because defense contractors vote Republican. The real motivation for many Republicans who are support the tax appears to be straightforwardly political. As a group, lawyers are the most generous donors to the Democratic party. According to the Center for Responsive Politics, lawyers gave $97.8 million in the 2000 election cycle, of which more than two-thirds went to the Democrats. With $10 billion in tobacco fees coming down the pipe, the GOP can't help but worry how much will end up in Democratic coffers.

As a candidate, Bush repeatedly argued that it is not for the government to decide who should receive a tax cut and who should not. On the estate tax, candidate Bush argued that it would be unfair to tax people's income more than once. But now President Bush seems eager to single out political enemies and to tax their income twice. This tax appears to be nothing more than a political weapon aimed at drying up a major source of Democratic funds and at punishing lawyers because most vote for the wrong party.

If he wishes to remain true to his campaign promises to restore civility and bipartisanship to Washington, Bush should abandon the partisan and discriminatory lawyer tax.