Denouncing a “squandering of the people’s money,” lawmakers voted decisively to impose a 90 percent tax on millions of dollars in employee bonuses paid by troubled insurance giant American International Group (AIG) and other bailed-out companies.
In some cases the bonuses might be taxed 100 percent, leaving the recipients with nothing.
It was only this past weekend that the bailed-out insurance giant paid bonuses totaling US$165 million to employees, including traders in the Financial Products unit that nearly brought about AIG’s collapse.
AIG has received US$182.5 billion in federal bailout money and is now 80 percent government owned.
Disclosure of the bonuses touched off a national firestorm that both the administration of US President Barack Obama and Congress have scurried to contain.
The House of Representatives vote on Thursday was 328 to 93. Similar legislation has been introduced in the Senate and Obama quickly signaled general support for the concept.
“I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated,” the president said in a statement.
“We want our money back now for the taxpayers,” House Speaker Nancy Pelosi said. “It isn’t that complicated.”
Representative Charles Rangel, a New York Democrat, chairman of the tax-writing House Ways and Means Committee, said he expected local and state governments to take the remaining 10 percent of the bonuses, nullifying the pay-outs.
In a statement issued by the White House late on Thursday, Obama said the House vote “rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat.”
“In the end, this is a symptom of a larger problem — a bubble-and-bust economy that valued reckless speculation over responsibility and hard work,” he said. “That is what we must ultimately repair to build a lasting and widespread prosperity.”
Obama did not explicitly endorse the House bill in his statement.
Instead, he was careful to take a wait-and-see attitude on the details of the final legislation while making clear that he supported the effort to get the bonus money back for taxpayers.
The bill would impose a 90 percent tax on bonuses given to employees with family incomes above US$250,000 at AIG and other companies that have received at least US$5 billion in government bailout money. It would apply to any such bonuses issued since Dec. 31.
The House vote, after just 40 minutes of debate, showed how quickly Congress can act when the political will is there.
Topic No. 1 raised by Republicans during the House debate was the last-minute altering of a provision in Obama’s US$787 billion stimulus law to cap executive compensation for firms receiving government bailouts.
The measure might have forestalled payment of the AIG bonuses.
But Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat and the author of the provision, said the administration insisted that he modify his proposal so that it would only apply to payments agreed to in the future.
That, critics said, cleared the way for the AIG payouts.
“The idea came from the administration,” Dodd said on Thursday.
Dodd said he was not aware of any AIG bonuses at the time the change was made.
US Treasury Secretary Timothy Geithner confirmed such conversations with Dodd. He said the administration was worried about possible legal challenges to the provision.
“We expressed concern about this specific version,” Geithner said in an interview with CNN. “But we also worked with him to strengthen the overall bill.”
A similar — but not as punitive — bill to recoup bonus payments with taxes was gaining support in the Senate.
It would impose a 35 percent excise tax on the companies paying the bonuses and a 35 percent tax on the employees receiving them.
The taxes would apply to all companies receiving government bailout money, but they are clearly geared toward AIG.
Meanwhile, New York Attorney-General Andrew Cuomo said AIG has given him the list of employees who received a total of US$165 million in retention bonuses.
Cuomo said he wouldn’t release any employees’ names until his office has answered security concerns raised by the AIG employees.