House OKs 90% tax on AIG bonuses

WASHINGTON

Denouncing a "squandering of the people's money," legislators voted yesterday to impose a 90 percent tax on millions of dollars in employee bonuses paid by insurance company AIG and other bailed-out companies.

The House vote was 328-93. Similar legislation has been introduced in the Senate, and President 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," Obama said in a statement.

House Speaker Nancy Pelosi, D-Calif., told colleagues: "We want our money back now for the taxpayers. It isn't that complicated."

The outcome may not have been complicated. But the lopsided vote failed to reflect the contentious political battle that preceded it.

Republicans took Democrats to task for rushing to tax AIG bonuses worth an estimated $165 million after the majority party stripped from last month's economic-stimulus bill a provision that could have banned such payouts.

"This political circus that's going on here today with this bill is not getting to the bottom of the questions of who knew what and when did they know it," said the House minority leader, Rep. John Boehner, R-Ohio. He voted "no," but 85 fellow Republicans joined 243 Democrats in voting "yes." It was opposed by six Democrats and 87 Republicans.

Among the votes from North Carolina representatives, Reps. Virginia Foxx, R-5th, and Howard Coble, R-6th, voted against the bill. Rep. Mel Watt, D-12th, voted for it.

The bill would impose a 90 percent tax on bonuses paid to employees with family incomes above $250,000 at American International Group and other companies that have received at least $5 billion in government bailout money. It would apply to any such bonuses paid since Dec. 31.

The House vote, after just 40 minutes of debate, showed how quickly Congress can act when the will is there.

It was only this past weekend that AIG paid bonuses totaling $165 million to employees, including traders in the Financial Products unit that nearly brought about AIG's collapse.

AIG has received $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 Obama administration and Congress have scurried to contain.

In a statement issued by the White House late yesterday, Obama said that 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."

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.

"This is not just another case of runaway corporate greed and arrogance, ripping off shareholders by excesses lavished around the executive suite," said Rep. Earl Pomeroy, D-N.D. "These bonuses represent a squandering of the people's money.... Starting right here, right now, we are saying no more."

The Senate bill is sponsored by Sen. Max Baucus of Montana, the chairman of the Senate Finance Committee, and the committee's senior Republican, Sen. Chuck Grassley of Iowa. It is expected to be brought to the Senate floor next week.

Also yesterday, New York's attorney general, Andrew Cuomo, said that AIG has given him the list of employees who received a total of $165 million in retention bonuses.

Cuomo said he will not release any employees' names until his office has answered security concerns raised by the AIG employees.

He also said he will work with AIG in the coming days to determine which workers have decided to return the payments.

Cuomo had demanded the names from AIG chief executive Edward Liddy through a subpoena. The deadline was yesterday.

About 400 AIG employees and future employees received bonuses, but not all of them earned over the $250,000 family-income threshold specified by the House bill.

Obama administration special envoy Richard Holbooke was on AIG's board of directors in early 2008, when the insurance company committed to the bonuses, and during the previous years of investment strategies that brought the company to brink of collapse. White House spokesman Tommy Vietor said yesterday: "Mr. Holbrooke had nothing to do with and knew nothing about the bonuses."

Although the House legislation calls for a 90 percent tax, Rep. Charles Rangel, D-N.Y., the chairman of the tax-writing House Ways and Means Committee, said he expects local and state governments to take the remaining 10 percent of the bonuses.

Rangel said that the legislation would also apply to mortgage companies Fannie Mae and Freddie Mac, among others, but exclude community banks and other smaller companies that have received less bailout money.

"The American people demand protection, and that's what we're doing today," he told the House.