Acting swiftly, the Democratic-led House approved a bill Thursday to slap punishing 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 above $250,000 at American International Group and other companies that have received at least $5 billion in government bailout money.
"We want our money back now for the taxpayers," House Speaker Nancy Pelosi said.
Democrats led the charge in an attempt to get in front of raging public anger over the AIG bonuses, even though a provision that would have made such payouts illegal was stripped from last month’s $787 billion stimulus bill by its Democratic sponsors.
The vote to tax back most of the bonuses was 328-93. Voting "yes" were 243 Democrats and 85 Republicans. It was opposed by six Democrats and 87 Republicans.
The bonuses, totaling $165 million, were paid to employees of troubled insurer AIG over the weekend, including to traders in the unit that nearly brought about the company’s collapse.
The 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.
However, although a number of Republicans first cast "no" votes, the political appeal of the legislation apparently won the day. In the closing moments of the roll call there was a heavy GOP migration from the "no" column to the "yes" side before the final vote was called.
Democratic leaders rushed the bill to the floor under a procedure that requires a two-thirds majority for passage.
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, 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 have received less bailout money.
A competing bill is gaining support in the Senate that would impose a 35 percent excise tax on the companies paying the bonuses and a 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.
In the House, a nonbinding resolution to express "the sense of Congress that the president is appropriately exercising all of the authorities granted by Congress" to deal with economic crisis didn’t fare as well as the vote to tax the bonuses. The vote on that measure was 255-160, short of the required two thirds margin.
A tax expert said there is plenty of precedent for levying punitive taxes on behavior that lawmakers find objectionable. Robert Willens, a corporate tax lawyer in New York, cited the steep excise taxes levied on money paid to firms to keep them from launching hostile takeover bids, known as "greenmail."
"You can write very narrowly tailored laws," Willens said. "And they can do it for bonuses already paid."
The bill passed as controversy swirled around the disclosure that, while Democrats and Republicans were both railing about the AIG bonuses, Democrats were also responsible for removing a provision, originally contained in stimulus legislation, to ban such bonuses.
Senate Finance Committee Chairman Chris Dodd, D-Conn., said Wednesday his staff agreed to requests from the administration to delete the executive pay provision that would have applied retroactively to recipients of federal aid.
However, Dodd said he was not aware of any AIG bonuses at the time the change was made.
President Barack Obama, who took office just under two months ago, told reporters Wednesday that his administration was not responsible for a lack of federal supervision of AIG that preceded the company’s demise.
But Obama added, "The buck stops with me."
The bill is HR 1586.