UPDATE: US House Approves Bill To Tax $165 Million In AIG Bonuses
March 19 2009 - 6:34PM
Dow Jones News
The U.S. House of Representatives handily passed legislation to
slap a 90% tax on bonuses at American International Group Inc.
(AIG) and other financial institutions that received federal
bailout funds.
It passed on a 328-93 vote, with a substantial assist from
Republicans, even though roughly half of the GOP's House members
opposed it.
The bill would tax bonuses paid by firms that received more than
$5 billion from the Troubled Asset Relief Program, or TARP, as well
as bonuses paid by Fannie Mae (FNM) and Freddie Mac (FRE).
President Barack Obama welcomed the vote, and said he looks
forward to signing legislation once the House and Senate have
agreed on a final bill.
"Today's 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...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," Obama said in a
statement.
Although broader in its effect, the bill is a response to the
furor over $165 million in bonuses recently paid by AIG. The
insurance giant has been in the crosshairs of lawmakers following
reports over the weekend that the company had paid retention
bonuses to many of the executives who worked in the financial
products division - the source of the AIG's woes.
"These people are getting away with murder," Ways and Means
Chairman Charles Rangel, D-N.Y., said during debate on the House
floor. "They're getting paid for the destruction they've caused to
our communities."
Under the plan, the first $250,000 of compensation, including
any bonuses earned by executives at the firms, would be taxed at
normal federal income tax rates. Any bonus over that amount would
be taxed at a much higher rate of 90%.
The Senate on Thursday rolled out its own approach to taxing
bonuses at institutions that received bailout funds. The bill would
impose a 70% excise tax, split evenly between the company paying
the bonus and the employee receiving it. That amount would be on
top of income taxes due on the bonuses, potentially pushing the
total tax rate above 100%.
The bill would also affect more firms than the House
legislation, capturing bonuses at large banks that received more
than $100 million in federal government aid.
The Senate could vote on the bill as early as next week.
The Treasury Department has said it is pursuing all avenues for
recouping the AIG bonuses. It said that it would seek to deduct the
$165 million from its most recent $30 billion infusion to the
company.
However, AIG Chief Executive Edward Liddy told a House panel
Wednesday the company doesn't want to necessarily tap the most
recent cash infusion. It needs the cash for capital adequacy
purposes rather than for operating reasons, Liddy said.
Earlier Thursday, the House rejected a Republican alternative
that would have directed the Treasury Secretary to develop a plan
to recover the AIG bonuses. The GOP would have blocked additional
federal aid to AIG until 100% of the $165 million in bonuses was
paid back.
In House floor debate, Republicans said Congress shouldn't rush
to judgment by passing the tax on bonuses.
"I believe this is a gimmick. I don't think this is going to
become law," said Rep. Devin Nunes, R-Calif. "What we should do
today is calm down, stop this process...and go through this bill to
consider whether this is the right course of action."
Republicans also said the legislation may be unconstitutional.
According to talking points distributed by House GOP conservatives,
the House bill might be a constitutionally prohibited "bill of
attainder," or legislation to punish a specific individual or group
of individuals.
Democrats say the bill is not specifically aimed at AIG but is
intended to prevent further abuses by companies receiving federal
aid.
-By Martin Vaughan and Corey Boles, Dow Jones Newswires;
202-862-9244; martin.vaughan@dowjones