Congressman Mike Thompson (D-Napa Valley) joined a bipartisan group of members voting for H.R. 1586, which passed the House by a vote of 328-93.
“It’s a slap in the face to tax paying Americans when failing companies spend taxpayer dollars on outrageous bonuses,” said Thompson. “By closing this loophole, we are fulfilling the promise made to taxpayers that their money wouldn’t be spent on executive bonuses.”
The legislation passed Thursday by the House will tax bonuses from companies that received $5 billion or more in Troubled Asset Relief Program (TARP) funds.
The bill would impose a 90-percent tax on bonuses paid after Dec. 31, 2008. The tax would also apply to bonuses paid by entities affiliated with these companies.
Thompson's office reported that the bill would not affect anyone receiving a bonus with adjusted gross income below $250,000 or employees of companies that have received $5 billion or less in TARP funds. This tax would not apply to any bonus that is returned to the company in the same taxable year that the bonus is paid.
“As much as I dislike using the tax code for this purpose, the bonus debacle was an exception I’m willing to make,” said Congressman Thompson.
The bill the House passed Thursday is very similar to legislation written by Congressman Thompson earlier this week. On Tuesday, Congressman Thompson introduced H.R. 1572, the “Taxpayer Protection Act,” which would subject any entity that received assistance under the Emergency Economic Stabilization Act of 2008 to a bonus tax rate of 90 percent.
Senate leaders have indicated that they will introduce and pass legislation to address this issue soon.
The action by the House of Representatives followed a Thursday latter to Speaker of the House Nancy Pelosi from Treasury Secretary Timothy Geithner.
In that letter, Geithner outlined steps the Treasury Department has taken to recoup the payments made to AIG employees as well as future payments.
Geithner asked AIG's chief executive officer, Edward Liddy, about the retention bonuses paid to employees within the financial products division, “the very division most culpable for the rapid deterioration of AIG.” The contract, he said, were found to be legally binding by AIG's lawyers, and the Treasury Department's attorneys found that it would be “legally difficult” to prevent them.
Geithner said he demanded Liddy scrap or cut hundreds of millions of dollars in additional payments due this year and beyond, which he said Liddy committed to do on terms that are consistent with the executive compensation provisions of the American Recovery and Reinvestment Act (ARRA), the administration's executive compensation guidelines and the interests of the American taxpayers.
The Treasury Department is working with the Department of Justice “to determine what avenues are available by which we can recoup the retention awards that have been paid,” wrote Geithner.
A contractual commitment will be imposed on AIG to pay the Treasury Department from the operations of the company the amount of the retention awards just paid. “In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments,” he said.
The company also will be subject to strict executive compensation provisions enacted by Congress in the ARRA, Geithner said.
“But in working to resolve the AIG bonus problem, we should not lose focus on the larger issue it raises,” Geithner wrote.
“This situation dramatically underscores the need to adopt, as a critical part of financial regulatory reform, an expanded 'resolution authority' for the government to better deal with situations like this,” he wrote.
“Such a resolution authority should include a comprehensive and broad set of regulatory tools that would enable the government to deal with financial institutions, like AIG, whose failure would pose substantial risks to our financial system, but to do it in a way that will protect the interests of taxpayers and innocent counterparties,” Geithner wrote. “Without this expanded authority, the government has been forced to take extreme measures to prevent the catastrophic collapse of AIG and allow the time necessary for its orderly wind down.”
Geithner said the public ire that has fallen on Liddy is unjustified, since he took over last year at the request of the US government to help rehabilitate the company and repay taxpayer funds, and in doing so inherited a difficult situation.
He said he looks forward to working with Congress “to modernize our financial regulatory system in way that protects the American taxpayer, meets the challenges of a dynamic global market and reduces the chance that we will face a financial crisis of this magnitude in the future.”
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