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Congress Moves to Slap Heavy Tax on Bonuses
Congress moved yesterday to levy punitive taxes on bonuses paid by financial firms receiving government aid, threatening to undermine federal efforts to rescue the financial system by driving away participants in the programs. A quickly assembled House bill was approved 328 to 93. It struck hard at Wall Street's compensation system, which has come under fire because of the $165 million in bonuses distributed last week by American International Group to executives of the troubled unit that helped lead the insurance giant to the brink of collapse. Under the legislation, those who received bonuses of more than $125,000 would surrender 90 percent of their payments to a special income tax.
But the bill's reach would extend to bonuses paid to tens of thousands of employees at the nation's nine largest institutions that have received at least $5 billion in assistance under the $700 billion financial rescue package Congress approved last year. The measure also applies to Fannie Mae and Freddie Mac, the mortgage giants the federal government took over in September.
Because virtually all Wall Street employees receive bonuses -- in many cases making up the majority of their compensation -- firms would rather back out of the government's rescue programs than be subject to such harsh tax measures, industry officials said. The banks could still survive, but without federal assistance they would not have enough capital to restart lending, which is considered central to reviving the economy.
Senate leaders aim to act next week on an even tougher bill that would affect all large banks that have received more than $100 million in asset relief payments. Collecting the tax is not necessarily the intent of the measure, lawmakers and aides said yesterday. Some AIG employees have returned their bonuses, and some Democratic leaders said they may forgo the tax effort and turn to other measures already in the works to limit executive compensation at recipient firms.
