Thompson bill seeks to tax AIG bonuses

Eureka Times Standard

Amid the rising clamor over $165 million in bonuses doled out by troubled insurance giant American International Group, North Coast Congressman Mike Thompson introduced a bill Tuesday to do something about it.

The bill, known as the “Taxpayer Protection Act,” would impose a 90 percent tax on all bonuses paid by businesses that received rescue money from the government, including AIG.

”It's outrageous that some of the same bankers who helped create this economic mess are now going to be rewarded for their failures with taxpayer dollars,” Thompson said in a press release. “By taxing all bonuses paid out by companies that received money to help them stay afloat, we'll send a message to these folks that business as usual is no longer acceptable.”

AIG -- teetering on the brink of collapse because it insured many of the toxic mortgage-backed securities at the vortex of the financial crisis -- received more than $170 billion in taxpayer bailout money. Then, Tuesday, New York Attorney General Andrew Cuomo announced that AIG has paid bonuses of $1 million or more to 73 employees, including 11 who no longer work for the company.

Discussing information he subpoenaed from AIG, Cuomo said the contracts affording the bonuses were written in 2008 and guaranteed employees 100 percent of their 2007 pay for 2008, regardless of their performance.

According to Cuomo, more than $160 million of the bonus money went to employees of AIG's Financial Products division, the unit primarily responsible for the financial meltdown that led to the federal bailout of the company.

Under current law, the Internal Revenue Service withholds 25 percent of bonuses less than $1 million and 35 percent of bonuses more than $1 million. Thompson's bill, if passed and signed into law, would require that any entity that received assistance under the Emergency Economic Stabilization Act of 2008 would be subject to a bonus tax rate of 90 percent for all employees.

”I would prefer to tax these bonuses at 100 percent, but that level is considered confiscatory and doesn't pass legal muster,” Thompson said.

The introduction of Thompson's bill came amid a rising outcry from both houses regarding AIG's bonuses.

Talking to the New York Times, Senate Majority Leader Harry Reid said that Congress was moving to reverse the payments.

”When a child breaks his curfew, he should get grounded,” Reid told the paper. “When someone commits a crime, he should be punished. And when an employee brings his company and our economy to the brink, he's not rewarded with multi-million dollar bonuses paid by the taxpayers.”

Speaking at the White House Monday, President Barack Obama conveyed a similar sentiment.

”This is a corporation that finds itself in financial distress due to recklessness and greed,” he said. “Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?

On Capitol Hill late Tuesday representatives suggested that if the AIG executives had any integrity, they would return the $165 million in bonus money. One leading Republican even suggested they might honorably kill themselves, then said he didn't really mean it.

Whatever the process, lawmakers of all stripes said, the money -- generally “retention payments” to keep prized employees -- belongs back in the government's hands.

Not all Democratic leaders were racing in that direction. Penalizing people with the tax code could be inappropriate, declared Rep. Charlie Rangel, D-N.Y., chairman of the taxwriting Ways and Means Committee. He said, “It's difficult for me to think of the code as a political weapon.”

Others saw the connection as reasonable and relevant. House Financial Services Committee Chairman Barney Frank, D-Mass., noted that the government, through the bailout, is now an 80 percent owner of the company and suggested that was grounds to sue to recover the bonuses.

But AIG is not the only publicly rescued company to give bonuses while being bailed out of financial ruin, nor is it the only company that would be affected by Thompson's bill.

Merrill Lynch paid $3.6 billion in bonuses to its executives while its sale to Bank of America Corp., a big recipient of bailout money, was pending.

Morgan Stanley also came under fire Tuesday. Sen. Robert Menendez, D-N.J., urged the halt of retention awards planned by the company's joint brokerage venture with Citigroup. Both firms have received billions of dollars in government bailout funds. Morgan Stanley is reportedly planning to pay its brokers up to $3 billion in retention payments -- a spokeswoman said the program amounts to a nine-year loan -- to keep them from jumping to other firms.

The Obama administration said it was trying to put strict limits on how future government bailout dollars could be used, and Reid on Tuesday said he urged the administration to step up its pace on that.