U.S. House passes bonus tax bill

Eureka Times Standard

The U.S. House of Representatives briskly passed a bill Thursday, based in part on legislation introduced Tuesday by North Coast Congressman Mike Thompson, to slap steep taxes on big employee bonuses at firms bailed out by taxpayers.

The bill would impose a 90-percent tax on bonuses given to employees with family incomes of more than $250,000 at companies that have received at least $5 billion in government bailout money, including those recently paid by the much-maligned American International Group (AIG).

The issue of lavish bonuses given to employees of bailed-out financial institutions rushed to the forefront this week, after news spread that AIG gave out $165 million in bonuses after receiving more than $180 billion in bailout funds. According to New York Attorney General Andrew Cuomo, AIG mailed retention bonuses of more than $1 million Friday to 73 employees, including 11 who no longer work for the company.

The AIG bonuses included ones sent to traders in the company's Financial Products division -- the unit that nearly brought about the company's collapse.

”It's a slap in the face to tax-paying Americans when failing companies spend taxpayer dollars on outrageous bonuses,” Thompson said in a press release. “By closing this loophole, we are fulfilling the promise made to taxpayers that their money wouldn't be spent on executive bonuses.”

The bill, House Resolution 1586, was introduced by the Ways and Means Committee, which has jurisdiction over all tax-related matters coming before Congress. The bill passed the House in a bi-partisan, 328-93 vote.

If it becomes law, the bill would tax bonuses -- from companies that received $5 billion or more in Troubled Asset Relief Program funds and went to employees making more than $250,000 in gross income -- at a rate of 90 percent. The tax would not apply to any bonus that is returned to the company in the same taxable year that the bonus is paid.

The bill's wide margin of victory came despite sharp Republican attacks calling the legislation a ploy to paper over Obama administration missteps.

Minority Leader John Boehner, R-Ohio, said the bill was “a political circus” to divert attention from why the administration and congressional Democrats had not done more to block the bonuses.

A number of Republicans first cast “no” votes on the bill before seemingly reversing course. In the closing moments of the roll call, there was a heavy Republican migration from the “no” column to the “yes” side before the final vote was called.

Rep. Charles Rangel, D-NY, chairman of the Ways and Means Committee, said he expects local and state governments to take the remaining 10 percent of the bonuses, nullifying the payouts.

Rangel said the bill would apply to mortgage giants Fannie Mae and Freddie Mac, among others, while excluding community banks and other smaller companies that received less bailout money.

Thompson said in an interview with the Times-Standard Wednesday that he agreed it was important to make sure smaller, community banks didn't get penalized by the bill.

”We're not looking for the bank teller who got a bonus from a community bank, or even the community bank president who got a bonus,” Thompson said. “We're talking about the outrageous.”

Gaining support in the Senate is a competing bill that would impose a 35 percent excise tax on the companies paying the bonuses and another 35 percent excise tax on the employees receiving them. The taxes would apply to all companies receiving government bailout money, but they are clearly geared toward AIG.

While not commenting specifically on the bills, President Barack Obama quickly issued a statement Thursday voicing support for the concept.

”I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated,” the president said in the statement.

The outrage over the AIG bonuses has also added fuel to the fire for those who have charged that Congress acted too hastily in passing the bailout bill and failed to include enough safeguards to ensure tax payer funds weren't piddled away.

For his part, Thompson said he wasn't happy with the bill when he voted for it but that it was imperative for Congress to act quickly.

”That money was spent to keep financial institutions from going off a cliff,” Thompson said. “The alternative was to let everything implode, and that would have been an economic crisis worse than the Great Depression.”