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Congress Moves to Slap Heavy Tax on Bonuses
The Senate measure would apply to the banks and investment firms that received 97 percent of the federal rescue money issued to date, capturing far more institutions than the House legislation, although small banks would be exempted. "It's about public accountability. This isn't the time for the status quo mentality," Snowe said.
The Senate legislation represents a dramatic step toward dismantling the bonus structure that has made banking and investment highly lucrative professions. But that same structure is blamed as a chief contributor to the current crisis. The Treasury Department issued guidelines, based on executive compensation caps approved last fall, that limited compensation to $500,000 for only the top officials of the largest recipients of future federal rescue money. Last month, in the $787 billion stimulus legislation, Congress imposed those limits on all federal rescue fund recipients, past and present, and limited bonuses to a third of annual compensation, payable in company stock.
Republicans voiced strong objections to the tax approach, calling it a smokescreen for the administration's faulty oversight of the Troubled Assets Relief Program. "It sounds to me like these guys are trying to cover their tracks," said Sen. Jon Kyl (Ariz.), the No. 2 Republican leader.
But in the House, GOP members bowed to the public outrage that the bonuses have stoked. Eighty-five Republicans voted in support of the bill, and bipartisan backing is expected in the Senate as well. Along with Snowe, the Senate measure is cosponsored by Sen. Charles E. Grassley (Iowa), the ranking Republican on the tax-writing Finance Committee.
The AIG crisis exploded this week after news broke of the long-planned bonuses, which were promised in employment contracts as a way to retain employees as they worked to "wind down" activities in the derivatives division. Finance Committee Chairman Max Baucus (D-Mont.), sponsor of the Senate bill, said he hoped the threat of the legislation would prove sufficient to persuade AIG employees to relinquish the bonuses.
At a tense hearing Wednesday on Capitol Hill, AIG chief executive Edward M. Liddy said that he had asked his employees to give back at least half of the bonus money, and that some had agreed to do so.
Said Baucus: "We're going to introduce the bill. I think it's sufficient leverage to get these paid back."
AIG responded yesterday to a subpoena from New York Attorney General Andrew M. Cuomo and turned over a list of employees from its Financial Products division who had received bonuses. Cuomo said he was performing a "risk assessment" before releasing any names, saying in a statement: "We are aware of the security concerns of AIG employees." Liddy told Congress on Wednesday that the company, which has received threats, is concerned for employees' safety.
Eager to blame Democrats as not preventing the bonuses, GOP lawmakers pointed to a last-minute tweak last month to the $787 billion stimulus package that allowed for bonuses that were signed in contracts before Feb. 11.
No Democrat accepted authorship of the timing provision until Sen. Christopher J. Dodd (Conn.), chairman of the Senate banking committee, acknowledged Wednesday night that his staff had worked with Treasury officials to craft the timing language.
Dodd accepted the provision "at the request of administration officials, who gave us no indication that this was in any way related to AIG. Let me be clear: I was completely unaware of these AIG bonuses until I learned of them last week."
Rep. Barney Frank (D-Mass.) introduced a separate measure last night that would give the administration the authority to retroactively change bonus contracts and ban such payments until a financial firm repays government aid.
Staff writer Steven Mufson contributed to this report.