WORLD> America
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WORLD> America
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Senate Republicans brake rush to tax AIG bonuses
(Agencies)
Updated: 2009-03-21 09:11
Robert Willens, a corporate tax lawyer in New York, said the Senate bonus tax bill would still allow bailout beneficiaries to negotiate higher salaries with employees to compensate for lost bonuses. The Senate bill authorizes the Treasury to issue regulations preventing firms from masking bonus payments as salaries, but it does not prevent firms from handing out raises. "If the vast majority of bonuses become fixed salaries that would harm the institutions because they would have higher fixed costs," Willens said. "What happens if the bank suffers through a poor year? It has all these fixed obligations they have to meet. That's the beauty of the bonuses." The House bill, which passed 328-93 and split Republicans almost evenly, would impose a 90 percent tax on bonuses paid after Dec. 31, 2008, by companies that have received more than $5 billion in government bailout money. The tax would not affect workers with adjusted gross incomes below $250,000.
Retention bonuses, like the ones paid to AIG employees, would be fully taxable. The first $50,000 of other bonuses, such as performance bonuses, would be exempt. The Senate bill would also cap deferred compensation for top executives at $1 million a year. Deferred compensation above that amount would come with steep penalties. More bills are on the way. House Financial Services Committee Chairman Barney Frank, D-Mass., is holding a hearing next week on legislation that would apply to bailout recipients such as Fannie Mae and Freddie Mac and prohibit them from paying "any bonus to any employee, regardless of when any agreement to pay a bonus was entered into." Republicans say there are enough problems or unknowns about the bonus-limiting bills to merit a closer look. Imposing too high a tax rate, doing it retroactively and targeting a narrow group of people could violate several of the Constitution's prohibitions against government takings without due process, Republicans say. Even House Ways and Means Committee Chairman Charles Rangel, D-N.Y., warned against using the tax code as a political weapon, but later backed off and supported the bill because, he said, that was the consensus and he saw no other way. In practical terms, too, Senate Republican leaders do not yet know where members of their caucus stand on the measures, particularly the Senate bonus limits bill co-sponsored by Republican Sen. Charles Grassley of Iowa, GOP officials said Friday. "I think the outrage is so obvious that we need to pass the legislation to send a clear message to corporate America that when your sucking the taxpayers, you don't do these outrageous things," Grassley said. "When you're under water, you don't suck in more water because then you die." Then there's the question of the sanctity of contracts. If the government goes around canceling contracts like those calling for AIG bonuses, people might stop entering into contracts that call for using government bailout money designed to get credit flowing again to help spend the nation out of recession. Some firms could be scared away from the bailout program, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable. "Ultimately it will undermine the recovery efforts," Talbott said. "It will have a chilling effect on ability to attract and retain employees," Talbott said.
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