The House moved quickly to vote yes on a bill to tax big employee bonuses given by companies who have taken substantial amounts of TARP money. The bill would impose a 90% tax on bonuses to highly compensated employees of companies that received more than $5 billion (with a b) in TARP money from the government.
The final vote was 328-93, one of the most bipartisan bills yet to pass the House. At the close, almost as many GOP Reps had voted yes as voted no, a stark contrast from prior bills this season, including the stimulus bill. 243 Democrats and 85 Republicans voted yes, while just 6 Democrats and 87 Republicans voted no.
The measure now moves to the Senate where it faces an admittedly more difficult vote. However, Senators from both sides of the aisle had proposed similar legislation earlier in the week; the Senate version had considered a less painful tax on the employee side with the imposition of a matching tax on the employer side.
I would not be surprised to see a modified version of the bill passed by the end of the month. It’s March madness on a totally different level.
The House Committee on Ways and Means has announced that Rep. Charles B. Rangel (D-NY) has introduced legislation to tax executive bonuses. The legislation, if passed, would affect bonuses received after January 1, 2009. You can read the text of the bill here as a pdf.
The legislation, which has been introduced as H.R. 1586 imposes a tax of 90% on bonuses of “highly paid individuals” (meaning those with AGI of $250,000 or more) for employees of companies which have received $5 billion or more under TARP. Hmm… Who could that be? Thinking… Thinking…
Could it be AIG? And Bank of America?
Interestingly, as Congress ramps up the restrictions on TARP money, more and more banks are miraculously finding that they really don’t need the money after all. In recent weeks, banks such as Sun Bancorp, Inc., the parent company of Sun National Bank, have indicated that the program is more trouble than it’s worth; Sun says it will return the $89 million of TARP funds that it has received. Makes you wonder why they took it in the first place.
Other banks, like Wells Fargo, are already whining about the “cost” to the banks. Wells Fargo cut its dividend pay out in order to repay TARP money. Wells’ CEO, Jeff Stumpf, has said, “These actions will help us repay the government’s investment at the earliest practical date. The U.S. Treasury’s Capital Purchase Program investment is generating a return for the U.S. taxpayer — at significant cost to the company.” Um, but that’s what lenders do, right, Mr. Stumpf? They make money on loans. I guess it doesn’t feel so good in the other direction.
Meanwhile, smaller community banks are making very public the notion that they have not accepted TARP funds. Some of those banks include Auburn National Bancorporation, Inc., United Bancorp and Pennsylvania’s own Harleysville Savings Financial Corp.
The field keeps changing on this one day by day. Stay tuned!
When Ed Liddy took the reins of troubled insurance giant AIG, he probably thought it would be tough. I’m guessing he had no idea how tough. Today, Liddy will face the House Financial Services subcommittee on capital markets in DC, and chances are, he’s in for a flogging.
It’s now been made clear that AIG will have to return $165 million that it paid out in executive bonuses to the Treasury Department in 2009. According to Geithner: “We will impose on AIG a contractual commitment to pay the treasury 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.” That’s right, double.
Public anger over the bonuses has not subsided. The bonuses, which total more than $165 million were said to be contractual “retention” bonuses. It has since been revealed that at least 11 of the 73 employees (15%) that took the money no longer work for AIG – so much for retention, huh? Additionally, the sector which received the bonuses, the financial products sector, has been charged with the primary blame for the AIG meltdown. In other words, these folks help run the company into the ground and got a nice big check for doing so.
All of this while AIG is operating on $170 billion in bailout money – $150 billion of which was promised before the provisions of TARP even took effect (thanks, ex-Secretary Paulson). AIG is scheduled to receive another $30 billion this year. That’s about the same amount of money the Big Three automakers asked for in the fall – you know, when we made them jump through some (potentially deserving) hoops to prove that they would be responsible with our money.
Of course, the bonus situations really should come as no surprise. This is the same company that, just days after receiving its first bailout payments in 2008, sent executives on a $440,000 retreat to a posh California resort. Those same executives – the ones who are perhaps indirectly responsible for massive layoffs that followed – spent the equivalent of two full years’ salary for someone making minimum wage in just a few days on spa treatments alone. Yep, spa treatments.
Congress sat back and let it happen. And now, they’re apparently waking up.
Just a day after Sen. Max Baucus (D-MT) suggested an excise tax on the bonuses, a key GOP Senator has stepped in to support the idea. Sen. Chuck Grassley (R-IA), who is the top ranking Republican on the Senate Finance Committee, will lead the vote on a measure which makes all retention bonuses subject to a 35% excise tax for excessive compensation to be paid by the company and by the individual. Nonretention bonuses of more than $50,000 would be subject to the same tax. If passed, the provisions would be retroactive to January 1, 2009, which means those AIG bonuses would be taxable under the new scheme.
AIG has since pledged to reduce 2009 bonuses by about 30%. They claim they need to keep their bonus structure – but do they? All of this talk of “talent” jumping ship if the company does away with the bonus structure is crazy. Where is the talent to begin with? If “talent” like that is what’s holding AIG together, then maybe it’s time for AIG to redefine the meaning of talent.
Here’s the thing: millions of Americans go to work every day and (gasp) do their job without being promised a little something extra. I know that’s hard for folks on Wall Street to understand, but it’s true. Even law firms are learning that paying out bonuses for simply showing up and doing your job is a bad idea: BigLaw, in the midst of thousands of legal layoffs, is scaling back – and in some cases eliminating – bonuses. You’re not owed a bonus, you earn a bonus. The definition of bonus is “a gift to reward performance.” Just think about that.
Grassley has. On yesterday, remarking on the bonuses, he said, “there’s just so much that the taxpayers of this country are going to stand for.” And he’s right.
In response to the growing ire over the $165 million in bonuses paid out to AIG, Sen. Christopher Dodd (D-CT) has suggested that taxing the compensation might be the answer. The idea is that it would help the government recover some of the money paid out to the executives.
AIG has received $173 billion in bailout money in the last six months, and continues to report massive losses. Yet, in the midst of the crisis, AIG paid out huge bonuses, citing contractual obligations. The American public was not pleased with the decision, prompting calls and emails to Senate officials. Dodd echoed the anger of taxpayers, saying, “This is another outrageous example of executives — including those whose decisions were responsible for the problems that caused AIG’s collapse — enriching themselves at the expense of taxpayers. Dodd further noted that executives at other companies that received bailout funds have volunteered to forgo bonuses but AIG did not.
President Obama said he will attempt to block the bonuses for AIG. The president said he has asked Treasury Secretary Geithner to “pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”
Since AIG is not voluntarily agreeing to forego bonuses, the House Financial Services Committee is working to find a way to force AIG to renegotiate the bonuses. This could prove to be fruitless since the contracts were negotiated before the TARP bill was approved. Even worse, under Treasury Secretary Paulson, money was authorized to be distributed to AIG before TARP was even approved.
Congressional officials, however, don’t believe the timing should matter. They claim that this latest action is a breach of public trust and should be fixed immediately. AIG claims that its dirty scumbaggy hands are tied.
One thing is for certain: this issue won’t go away any time soon. Whether AIG gets hit by subpoenas (as in New York), is prohibited from receipt of US funds or whether executives find themselves literally paying for their bonuses in the way of excise taxes, some resolution will be demanded by taxpayers. It is, after all, our money.
