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House passes measure to tax AIG bonuses at 90%

The move comes amid news that Fannie Mae has been planning to pay similar retention bonuses and that 13 bailout recipients owe millions in back taxes.

March 20, 2009|James Oliphant

WASHINGTON — Struggling to keep ahead of public outrage, the House of Representatives on Thursday passed a bill to recoup the lion's share of the $165 million in bonuses paid to executives of American International Group Inc.

But the infuriating news just kept coming. A prominent congressman said 13 financial firms that had received an injection of government money owed more than $220 million in unpaid taxes. And Citigroup Inc., which has received $45 billion in federal money, planned to spend $10 million for new offices for its top executives, Bloomberg News reported.

That's on top of news this week that beleaguered mortgage giant Fannie Mae was set to pay its own big-money retention bonuses -- the very sort of payouts that fueled condemnation of AIG.

The House tax measure, hurriedly drawn up on the orders of the Democratic leadership, imposes a 90% levy on those who were paid executive bonuses if their families earned more than $250,000 annually and if their firms, such as AIG, received more than $5 billion in federal bailout funds. It passed by more than a two-thirds majority, 328 to 93.

The Senate is taking a different approach. It is readying a bill that would levy a 35% excise tax on executive bonuses. Both the company and the recipient of the bonuses would pay the tax. The Senate could take up the measure next week, or perhaps attempt to reconcile it with the House bill.

President Obama refused to embrace the House bill. Speaking on NBC's "The Tonight Show With Jay Leno" in Burbank, he said, "I understand Congress' frustrations. They're responding to, I think, everybody's anger. But I think the best way to handle this is to make sure that you close the door before the horse gets out of the barn. And what happened here is the money has already gone out, and people are scrambling to try to find ways to get back at them."

And in New York, state Atty. Gen. Andrew Cuomo announced that AIG had complied with a request to turn over the names of those who had received the bonuses. Cuomo pledged to be cautious in releasing the names because of concerns over the employees' safety.

The House bill, sponsored by Rep. Charles B. Rangel (D-N.Y.), garnered significant Republican support. But that did not come without a bitter debate, with conservative Republicans angrily denouncing the measure as a political charade intended to deflect blame from Democrats about how the AIG bonuses were permitted to be paid in the first place.

They remained focused on an embarrassing disclosure by Senate Democrats on Wednesday that they had acceded to a Treasury Department request in February to scale back language in the economic stimulus bill that would have limited the payments.

"This bill is nothing more than an attempt for everybody to cover their butt up here on Capitol Hill," said Rep. John A. Boehner of Ohio, the House Republican leader.

Opponents of the tax bill advocated a separate plan that would require the Treasury Department to seek repayment of the funds immediately. And some suggested the bill was an unconstitutional attempt to penalize a specific company, though legal experts said Thursday that the measure would probably pass muster by the courts.

Supporters of the bill said it was the most effective means for the government to seek redress of the bonus money.

"This vote is the difference between solving the problem or continuing the problem," said Rep. Steve Israel (D-N.Y.). "The only way to get their money back is to tax it back."

Some Republicans agreed. "At the end of the day, this insult to taxpayers cannot, should not and will not stand," said Rep. Dave Camp of Michigan.

By the time the vote was held, Republicans were clearly divided, with nearly half supporting the Rangel measure.

Democrats charged that Republicans had opportunistically changed their tune on the compensation issue, noting that many have resisted past attempts to limit executive pay. House Speaker Nancy Pelosi (D-San Francisco) pushed back at suggestions that her party was to blame for Wall Street excesses.

"The CEO compensation issues were completely resisted by the Bush administration," Pelosi said Thursday. "We are sweeping up after them."

The House action came as Fannie Mae said in filings with the Securities and Exchange Commission that it intended to pay four key executives retention bonuses that ranged from $470,000 to $611,000. Billions in government capital has been pledged to the secondary mortgage lender to keep it solvent.

The office of House Financial Services Committee Chairman Barney Frank (D-Mass) said Thursday that the congressman planned to ask the government regulator that now oversees Fannie Mae to prevent the bonuses from being paid.

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