WASHINGTON — Democrats are rushing through a legally questionable tax on employee bonuses from bailed-out firms to paper over the failure of the Obama administration and key lawmakers to stop those payouts, Republicans charged Thursday.
“The Democratic bill brought to the floor today is constitutionally questionable,” said Rep. Mike Pence, R-Ind. “It’s obviously a transparent attempt to divert attention away from the truth that Democrats in Congress and this administration made these bonus payments possible.”
Democrats rushed a bill to the House floor on Thursday to levy a 90 percent tax on bonuses paid to employees with family incomes above $250,000 at companies that have received at least $5 billion in government bailout money. A vote was expected later Thursday.
“We figured that the local and state governments would take care of the other 10 percent,” said Rep. Charles Rangel of New York, chairman of the tax-writing House Ways and Means Committee.
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 tax expert said there is plenty of precedent for levying punative 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.”
House Democratic leaders unveiled the bill Wednesday as the head of embattled American International Group Inc., which has received $182 billion in bailout money, testified about $165 million in bonuses paid out in the past week to about 400 employees in its Financial Products unit.
Edward Liddy, who was brought in last year by the government to run AIG, told a House subcommittee that the company was contractually obligated to pay the bonuses but that some of the recipients have begun returning all or part of them.
Liddy said that on Tuesday, he had “asked those who have received retention payments in excess of $100,000 or more to return at least half of those payments.” Some have “already stepped forward and returned 100 percent,” he added.
Lawmakers rushed to the microphones after word of the bonuses was leaked out by the government over the weekend. Bills were quickly drawn up in both the House and Senate to impose heavy new taxes on them.
The top two members of the Senate Finance Committee on Tuesday announced a bill 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.
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.”
Obama said his administration was consulting with Congress on creating a new “resolution authority” to seize giant institutions like AIG including all their toxic assets whose collapse in normal bankruptcy could cause calamity in the financial markets.
Republicans have pointed their criticism at Treasury Secretary Timothy Geithner, questioning how much he know about the bonuses in advance and efforts by the administration to stop them. And they complained anew about being locked out of discussions earlier this year when Democrats decided to jettison a provision in the economic stimulus bill that would have revoked the payments.
“The fact is that the bill the president signed, which protected the AIG bonuses and others, was written behind closed doors by Democratic leaders of the House and Senate. There was no transparency,” said Sen. Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee.