NEW YORK AND WASHINGTON — As Washington's anti-bonus zeal intensified Friday, alarm spread across Wall Street that the government's sudden taxation fervor could ensnare thousands of workers and affect every major financial firm.
Although the fast-moving legislative campaign was born of frustration with the bonuses paid to workers at ailing American International Group Inc., employees at comparatively healthy investment banks fretted about the steep tax hikes they could face if the legislation became law.
A bill passed Thursday by the House would impose a 90% levy on bonuses paid to workers whose household incomes top $250,000 by firms that received more than $5 billion under the government's financial rescue package. That would encompass much of Wall Street, including such marquee-name firms as JPMorgan Chase & Co. and Goldman Sachs Group Inc.
And new proposals sprouted Friday on Capitol Hill as some lawmakers said the measure passed the day before didn't go far enough.
Rep. Brad Sherman (D-Sherman Oaks) said he was preparing legislation that would impose a 70% surtax on all pay -- not just bonuses -- above $500,000 a year at major companies that received bailout funds.
And a prominent labor union official wrote congressional leaders asking for legislation to recoup $3.6 billion in bonuses paid by Merrill Lynch & Co., most of which wouldn't be taxed under the House-passed bill because nearly all of the payouts were made last year.
On Wall Street, where outsized pay is a significant attraction, staffers worried that Congress could rewire a compensation system that dates back decades, to the days when the firms were private partnerships and bonuses served as a form of profit-sharing.
The rush to taxation only heightened the anxiety of an industry enduring its most arduous period in decades.
For the firms in comparatively good shape, most employees thought they had survived the worst of the financial crisis, said Jeanne Branthover, head of the financial-services practice at Boyden Global Executive Search in New York.
"Yes, they may be earning less and be working harder, but they were OK," she said. "And now, anything could happen. People in New York at every firm are worried."
Top executives -- fearing an exodus of talent to smaller firms, hedge funds or foreign banks that wouldn't be subject to the tax legislation -- scrambled Friday to calm employees and lobby Congress.
