Senate Democrats Preparing Excise Tax On AIG Bonuses
18 March 2009 - 4:44AM
Dow Jones News
Senate Democrats Tuesday were preparing legislation that would
levy up to a 91% excise tax on the bonuses paid to executives at
American International Group Inc. (AIG) that have stirred
outrage.
In a letter sent to Edward Liddy, AIG's chairman and chief
executive, 10 Democratic senators urged him to renegotiate the
$165million paid out in bonuses to executives at the company's
troubled financial products division.
If not, the letter said, lawmakers wouldn't hesitate to recoup
the bonuses through legislation.
"We stand ready to take the difficult, but necessary step of
working to enact legislation that would allow the government to
recoup these bonus payments, perhaps by imposing a steep tax - as
high as 91 percent - that will have the effect of recovering nearly
all of the bonuses that have been paid out since AIG turned to
taxpayers for help," the letter said.
Liddy was installed as head of AIG after the federal government
stepped in last year to rescue the ailing insurer.
Senate Finance Committee Chairman Max Baucus, D-Mont., said
Tuesday that lawmakers of both parties were working on legislation
that would be introduced soon.
Since last fall, taxpayers have pumped more than $170 billion
into AIG to keep the beleaguered company afloat. This past weekend,
the company disclosed that around $90 billion of that money had
been paid out to third parties it had outstanding contracts with,
including large U.S. and international banks.
House Majority Leader Steny Hoyer, D-Md., said that he was
unsure how legislation could be drafted that would impose a tax
against executives working for a particular firm.
He said one possibility would be to pass a law going after
bonuses paid out to any firm that had received taxpayer money
through the Troubled Asset Relief Program.
A senior Democratic Senate aide acknowledged that writing the
bill so that it was narrow in scope would be difficult, and that
any effort would be likely to impact more than just AIG
executives.
The aide said that one idea that was being debated would be to
impose the tax on firms that had received a certain amount of
taxpayer money, or establish a threshold of public ownership at
which point the excise tax would be applied.
Since the financial markets came to the brink of collapse last
year, the taxpayer has assumed around an 80% ownership stake in
AIG. It has in effect taken over Fannie Mae (FNM) and Freddie Mac
(FRE), and has also taken equity in a number of large banks.
Of those, officials said recently the federal government's stake
in Citigroup Inc. (C) could reach as high as 36% if it required a
further injection of taxpayer money.
Despite his doubts about the imposition of a tax aimed at
reclaiming the bonuses, Hoyer said there was no question in his
mind the executives should give the money back, saying if "they had
any common sense at all," they would.
"If they were at all sensitive to what the American people had
done to keep their company afloat ... they would simply give this
money back."
House Minority Leader John Boehner, R-Ohio, reserved his anger
for the Obama administration's handling of the AIG situation.
At a press conference Tuesday morning, he questioned why
officials agreed to give the beleaguered company a further $30
billion only weeks ago, without ensuring there were sufficient
controls in place to limit how the firm used the money.
"I think this is outrageous, and I think the American people are
rightly outraged that their tax money is going to pay bonuses to
the very people that got this company in trouble," Boehner
said.
-By Martin Vaughan and Corey Boles, Dow Jones Newswires;
202-862-9244; martin.vaughan@dowjones.com