Aig Bonus Tax May Stall as Obama Hesitates, Republicans Balk
Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday he will give Republicans more time to study a proposal to impose a 70 percent tax on bonuses. AIG, paid out $165 million in bonuses, received $182.5 billion in U.S. bailout funds, according to the Government Accountability Office.
Republican opposition to the proposal in the Senate is more uniform than it was in the House, where party members split almost evenly in a vote last week, said the partys top Senate vote counter, Jon Kyl of Arizona. While Republicans are in the minority in the Senate, they can more easily block legislation with procedural hurdles.
If Reid “wants this bill, hes going to have significant opposition,” Kyl told reporters yesterday. He also said he was surprised to find calls from constituents running 6 to 1 against the measure.
This week and next, Reid said, the Senate will work on a national-service bill and Obamas budget proposal. Congress begins a two-week recess on April 6. Reid spokesman Jim Manley said there would have to be unanimous agreement to proceed with the bonus-tax legislation in the Senate before the recess.
“We will continue to work to right this egregious misuse of taxpayer dollars,” Reid said. “With Republican cooperation we can quickly and responsibly return these funds to the American people.”
Giving Money Back
Senate Budget Committee Chairman Kent Conrad of North Dakota pointed to reports that some AIG employees are returning their bonuses. New York Attorney General Andrew Cuomo said half of the AIG bonuses may be retrieved, and nine of the top 10 recipients will give back their checks.
“Hopefully, this is a problem that can be resolved in a different way,” said Conrad, who said “well see,” when asked whether the Senate might drop the AIG bonus bill.
U.S. stocks, which rose yesterday on news that the Treasury Department will finance as much as $1 trillion in purchases of illiquid real-estate assets, reached their highs of the day following Reids statement. The Standard & Poors 500 Index rose 54.38 points to 822.92, a 7.1 percent gain.
House Vote
On March 19, The House voted 328-93 for a bill to impose a 90 percent tax on some bonuses paid by AIG and other companies that got federal bailout money. The measure would affect employees with household income of more than $250,000 a year who received bonuses from companies that took more than $5 billion in aid from the Troubled Asset Relief Program.
Later that day, four senators introduced a measure to impose the 70 percent tax on bonuses, with the levy split between the employee and company. Reid sought immediate Senate passage, though Republicans objected.
Obama said on CBSs “60 Minutes,” aired March 22, that the government shouldnt act in “anger” on the bonus issue and he questioned the legality of imposing the punitive tax. “As a general proposition, you dont want to be passing laws that are just targeting a handful of individuals,” Obama said on the program.
Greenmail Tax
To show there is a precedent for the legislation, some Senate aides have pointed to tax laws that target small groups of financiers, such as a 50 percent excise tax enacted in 1987 on certain payments known as “greenmail” that aimed to avoid hostile takeovers.
Legal scholars have also said the push for a new tax on bonuses would likely withstand a constitutional challenge.
Comments from a stream of Republicans yesterday, some quoting remarks by Obama over the weekend, indicated the cooperation Reid said he needs for action on the Senate bill wont be forthcoming.
“Its a typical House rush to judgment,” Senator Robert Bennett, a Utah Republican, said of that chambers quick approval of its bill.