Outraged Congress eyes tax on AIG bonuses

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Outraged Congress eyes tax on AIG bonuses

By Kevin Drawbaugh


WASHINGTON (Reuters) - Outraged U.S. lawmakers moved on Tuesday toward slapping a heavy tax on millions of dollars in executive bonuses at bailed-out insurer American International Group Inc.


House of Representatives Speaker Nancy Pelosi hoped for legislation within days to recover the bonuses from AIG, a giant that once stood astride the financial system but is now surviving on a federal rescue worth up to $180 billion.


AIG did not return calls and e-mails seeking comment.


The AIG affair is sure to aggravate public anger over the bailouts for big business and sap support for the new Obama administration's efforts to stabilize the financial system and pull the economy out of recession.


With one senator remarking that top AIG managers might even consider suicide, senators proposed a special tax on $165 million in bonuses pledged to dozens of executives at what was once the world's largest insurer.


The House is making its own efforts to recoup the money. Pelosi told reporters several committees have been working on AIG legislation that the House could act on quickly.


Other options could be enlisting the U.S. attorney general to recover excessive pay at companies getting government aid and clamping down on bonuses at such companies.


Senate Democratic Leader Harry Reid said the AIG bonuses should be returned. Otherwise, he said, Congress will have an opportunity over the next few days to consider legislation that he thought would pass overwhelmingly.


AIG will send its chief executive officer, Edward Liddy, to Capitol Hill on Wednesday to testify before the powerful House Financial Services Committee.


Representative Barney Frank, chairman of that panel, said AIG should be sued "to get those bonuses back."


AIG was due to pay bonuses last Sunday to employees of its financial products unit, which made bad bets on toxic mortgages and credit default swaps that sent the company to its knees.


'THE COUNTRY IS ANGRY'


Several lawmakers introduced tax bills likely to worry other businesses taking part in the government's many financial rescue programs.


Democratic Representative Gary Peters' bill, for instance, would put a 60 percent tax on bonuses over $10,000 at any company in which the government has a 79 percent or greater equity stake. It now holds about 80 percent of AIG.


The special tax would be in addition to the top 35 percent income tax rate plus state and local taxes, making it possible to recover 100 percent of the bonuses, Peters said.


"Currently, AIG is the only company that meets this threshold," he said in a statement. "The legislation I'm proposing will get taxpayers their money back.


Max Baucus, the Democratic chairman of the Senate Finance Committee, and Chuck Grassley, the panel's top Republican, proposed a 70 percent tax on bonuses for executives at companies getting money from the $700 billion financial bailout package.

The proposal would require the companies to pay a 35 percent excise tax, with the other 35 percent to be paid by the bonus recipient. The tax would apply to any company receiving federal bailout money, including mortgage giants Fannie Mae and Freddie Mac, Senate aides said.

The legislation is aimed mostly at AIG and the tax would be retroactive to January 1, 2009.

"The country is angry and I am angry," Baucus said. "Companies that shouldn't be paying bonuses are ... and it's got to stop. The tax code is one way to do it."

Grassley said in a radio interview on Monday he would feel better if AIG's top managers were to "take that deep bow and say 'I'm sorry' and then either do one of two things: resign or go commit suicide."

On Tuesday, he stepped back.

"What I'm expressing here obviously is not that I want people to commit suicide," Grassley said. "But I do feel very strongly that we have not had statements of apology."

AIG'S MILLIONAIRES

President Barack Obama, who took office eight weeks ago, expressed "outrage" on Monday about the bonuses, which come as the White House faces widening skepticism about financial institution bailouts -- none more so than AIG.

"Obviously, the president is committed to working as quickly as possible with Congress to find ways to recoup this money," White House spokesman Robert Gibbs said on Tuesday.

New York Attorney General Andrew Cuomo said AIG created 73 millionaires with bonuses of $1 million or more. He has said he will subpoena AIG for more information about the bonuses, including the names of the recipients.

Senate Republican Leader Mitch McConnell pinned much of the blame on the Obama administration, which inherited the AIG bailout, the financial crisis and the recession from the Republican administration of George W. Bush.

McConnell said Obama's team should not have given AIG an additional $30 billion two weeks ago without getting assurances that it would not be spent on bonuses.

"This administration could have and should have ... prevented this from happening," he said.

(Additional reporting by Kim Dixon, Donna Smith, Richard Cowan, John Poirier, David Lawder, Thomas Ferraro, Susan Cornwell, Jeremy Pelofsky, Caren Bohan, Corbett Daly and Glenn Somerville in Washington, and Grant McCool and Jonathan Stempel in New York; Editing by John O'Callaghan)