Denouncing a "squandering of the people's money," lawmakers voted decisively Thursday to impose a 90 percent tax on millions of dollars in employee bonuses paid by troubled insurance giant AIG and other bailed-out companies.
The House vote was 328-93. The Senate is taking a slightly different approach. It's considering a 35 percent excise tax on the companies paying the bonuses and a 35 percent tax on the employees getting them.
President Barack Obama has signaled general 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 a statement.
House Speaker Nancy Pelosi, D-Calif, told colleagues, "We want our money back now for the taxpayers. It isn't that complicated."
Contentious battle
The outcome may not have been complicated. But the lopsided vote failed to reflect the contentious political battle that preceded it.
Republicans took Democrats to task for rushing to tax AIG bonuses worth an estimated $165 million after the majority party stripped from last month's economic stimulus bill a provision that could have banned such payouts.
"This political circus that's going on here today with this bill is not getting to the bottom of the questions of who knew what and when did they know it," said House Republican Leader John Boehner of Ohio.
He voted "no," but 85 fellow Republicans joined 243 Democrats in voting "yes." It was opposed by six Democrats and 87 Republicans.
The bill would impose a 90 percent tax on bonuses given to employees with family incomes above $250,000 at American International Group and other companies that have received at least $5 billion in government bailout money. It would apply to any such bonuses issued since Dec. 31.
National firestorm
The House vote, after just 40 minutes of debate, showed how quickly Congress can act when the political will is there.
It was only this past weekend that the bailed-out insurance giant paid bonuses totaling $165 million to employees, including traders in the Financial Products unit that nearly brought about AIG's collapse.
AIG has received $182.5 billion in federal bailout money and is now 80 percent government-owned.
Disclosure of the bonuses touched off a national firestorm that both the Obama administration and Congress have scurried to contain.
During a taping of the "The Tonight Show with Jay Leno," Obama responded to the vote, saying, "I understand Congress’ frustrations, and they’re responding to, I think, everybody’s anger. But I think that the best way to handle this is to make sure that you’ve closed the door before the horse gets out of the barn."
And in a statement issued by the White House late Thursday, Obama said the House action "rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat."
"In the end, this is a symptom of a larger problem — a bubble-and-bust economy that valued reckless speculation over responsibility and hard work," he said. "That is what we must ultimately repair to build a lasting and widespread prosperity."
Obama's wait-and-see
In his statement, Obama did not explicitly endorse the House bill. Instead, he was careful to take a wait-and-see attitude on the details of the final legislation while making clear that he supports the effort to get the bonus money back for taxpayers.
Topic No. 1 raised by Republicans during the House debate was the last-minute altering of a provision in Obama's $787 billion stimulus law to cap executive compensation for firms receiving government bailouts.
The measure might have forestalled payment of the AIG bonuses.
But Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat and the author of the provision, says the administration insisted that he modify his proposal so that it would only apply to payments agreed to in the future.
That, critics claim, cleared the way for the AIG payouts.
"The idea came from the administration," Dodd said Thursday
Dodd said he was not aware of any AIG bonuses at the time the change was made.
Treasury Secretary Timothy Geithner confirmed such conversations with Dodd. He said the administration was worried about possible legal challenges to the provision.
"We expressed concern about this specific version," Geithner said in an interview with CNN. "But we also worked with him to strengthen the overall bill."
The treasury secretary, who has been criticized for not learning of the AIG bonus payments sooner since he helped orchestrate the bailout last year as president of the New York Fed, said anew in the interview that he was not informed of the bonuses until last week.
"And as soon as I heard about the full scale of these things, we moved very actively to explore every possible legal avenue to address this problem," Geithner said.
A similar — but not as punitive — bill to recoup bonus payments with taxes was gaining support in the Senate.
It would impose a 35 percent excise tax on the companies paying the bonuses and a 35 percent tax on the employees receiving them. The taxes would apply to all companies receiving government bailout money, but they are clearly geared toward AIG.
"This is not just another case of runaway corporate greed and arrogance, ripping off shareholders by excesses lavished around the executive suite," said Rep. Earl Pomeroy, D-N.D. "These bonuses represent a squandering of the people's money. ... Starting right here, right now, we are saying no more."
The Senate measure is sponsored by Sen. Max Baucus of Montana, the chairman of the Senate Finance Committee, and the panel's senior Republican, Chuck Grassley of Iowa. It was expected to be brought to the Senate floor next week.
Meanwhile, New York's attorney general, Andrew Cuomo, said AIG has given him the list of employees who received a total of $165 million in retention bonuses.
Cuomo said he won't release any employees' names until his office has answered any security concerns raised by the AIG employees.
He also said he will work with AIG in the coming days to determine which workers have decided to return the payments.
Cuomo had sought the names from AIG chief executive Edward Liddy through a subpoena. The deadline was Thursday.
Separately, Connecticut's consumer protection division also subpoenaed AIG, demanding that the contracts and names of employees who received the bonuses be provided by March 27. Gov. M. Jodi Rell has said she wants the division to determine whether the bonuses can be voided under the Connecticut Unfair Trade Practices Act.
AIG's financial products division is headquartered in Wilton, Conn.
Connecticut Attorney General Richard Blumenthal says his office also demanded the bonus recipients' names and the amounts.
About 400 AIG employees and future employees received bonuses, but not all of them earned over the $250,000 family income threshold specified by the House bill.
Obama administration special envoy Richard Holbooke was on AIG's board of directors in early 2008, when the insurance company committed to the bonuses, and during the previous years of aggressive investment strategies that brought the firm to brink of collapse. White House spokesman Tommy Vietor said Thursday: "Mr. Holbrooke had nothing to do with and knew nothing about the bonuses."
While the House legislation calls for a 90 percent tax, Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee, said he expected local and state governments to take the remaining 10 percent of the bonuses.
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 have received less bailout money.
"The American people demand protection and that's what we're doing today," he told the House.