CQ TODAY ONLINE NEWS
March 24, 2009 – 12:01 a.m.
Senate Takes a Time Out on AIG Bonus Tax
By Phil Mattingly and Richard Rubin, CQ Staff
A confluence of events has slowed momentum for congressional action on bonuses handed out to firms receiving federal bailout money, which ignited a public furor and had President Obama chiding and cautioning Congress against any hasty moves.
The Senate will not move forward without unanimous consent to proceed with the legislation (
Meanwhile, New York Attorney General Andrew M. Cuomo announced late Monday that many of the top bonus recipients at American International Group Inc. — at the center of the bonus firestorm — had returned the money, and that he hopes to recover about half of the $165 million paid out.
Obama took some of the steam out of the effort during an interview March 22 on CBS’s “60 Minutes”.
“I think that as a general proposition, you don’t want to be passing laws that are just targeting a handful of individuals,” Obama said. “You want to pass laws that have some broad applicability. And as a general proposition, I think you certainly don’t want to use the tax code to punish people.
“Let’s see if there are ways of doing this that are both legal, that are constitutional, that upholds our basic principles of fairness, but don’t hamper us from getting the banking system back on track.”
“We’re looking very carefully” at changes in the legislation, Finance Committee Chairman Max Baucus , D-Mont., told reporters Monday. “We’ve got a lot of ideas. Everybody knows we have to address the outrage. But everybody knows we’ve got to come up with a solution that helps get our country back on track.”
Charles E. Grassley of Iowa, the committee’s ranking Republican who joined Baucus in crafting the legislation, complained bitterly about Obama’s weekend retreat from the congressional proposals.
“We wouldn’t be using the tax code if he had been on top of things and kept the bonuses from going out in the first instance. All the special interests that the president said he’s fighting are raising their ugly head and he’s submissive to them,” Grassley said.
With two Republicans signed on as cosponsors, the legislation written by Baucus and Grassley could have a clear path through a Senate with 58 Democrats sitting in the majority.
But with a chunk of the Democratic Caucus remaining uncommitted to the legislation and some top Republicans vowing to slow it down, Democratic leaders would have a significant problem on their hands if they tried to push it forward.
‘Congress Acted in Haste’
Obama’s comments came after a week in which congressional rage quickly turned into legislative action. On the heels of revelations that AIG had paid $165 million in retention bonuses to employees in its maligned Financial Products division, the chairmen of the tax-writing panels in both chambers produced legislation to recoup the bonus money.
The House passed its bill, 328-93, on March 19. It would impose a 90-percent tax on the bonuses, targeting a narrow group of individuals at about a dozen firms that have received more than $5 billion in federal aid, including AIG.
The Senate bill applies much more broadly, affecting companies that received as little as $100 million. It would impose a 35 percent excise tax on companies that paid bonuses, as well as a 35 percent tax on employees who received them.
Senate Minority Whip Jon Kyl , R-Ariz., said Monday that he agreed with Obama’s televised comments and that the issue deserves to be aired in hearings before legislation is put on the floor for consideration.
“There are a lot of concerns that have been raised over the weekend about both of these approaches,” Kyl said of the House and Senate legislation. “I have urged a little bit of caution here so that we don’t do the wrong thing again. One of the reasons that we’re in the position we’re in is because Congress acted in haste.”
Even with waning support from the White House, the anger with AIG — and the congressional impetus to do something — remains strong.
“I think we have to respond to where the people are,” said Sen. Barbara A. Mikulski , D-Md. “And there’s a general feeling that these guys don’t pay taxes anyway, so that’s the direction.”
Timing Considerations
The administration’s stance came a day before the Treasury Department rolled out its latest plan to clear toxic assets from the balance sheets of battered banks. That program would rely largely on private investors, a group that could be scared away should congressional action on the bonuses continue, Kyl said.
“One of the things that I’d like to do is make sure that, in expressing our outrage — and every one of us are outraged about this — that we do it in a way that’s constructive and not destructive to the very program the president has created to try and help these struggling companies get back on their feet,” said Kyl.
AIG has received more than $180 billion in federal bailout funds. Of that amount, $40 billion came from the $700 billion Troubled Asset Relief Program enacted last fall (PL 110-343) .
The Federal Reserve has taken on much of the remaining financial burden to keep the insurance giant afloat.
Treasury has committed to injecting another $30 billion of TARP funds into the company, as needed. The administration has not cut the check and has said it will take $165 million out of that payment in punishment for the retention bonuses.
Fed Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner will testify Tuesday before the House Financial Services Committee on AIG, along with current New York Fed President William Dudley.
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