Tax The Bonuses

Right Democrat has this:

Senator Tom Harkin (D-IA), joined by Senate Majority Leader Harry Reid (D-NV) and 10 other Senate Democrats, warned AIG executives in a letter Tuesday to give up the controversial bonuses they stand to receive or else prepare for Congress to tax the payments to virtually nothing.

In a letter to AIG CEO Edward Liddy, the Democratic senators warned that they would pass a “steep tax,” to recoup the bonus payments if the executives refused to forego them.

“In America, we believe in rewarding success. AIG is attempting to reward the most extreme failure,” wrote the lawmakers.

“I believe that any bonuses or other special benefits paid to these highly paid people should be pulled back. Congress should pass a bill taxing the payments at 100 percent minus the amounts owed on those sums for other income or payroll taxes. They should not receive an extra dime,” Harkin said. “Some of these financial institutions have no end to their greed and outrageous expectations of what they deserve. This is not about contractual obligation. These are companies that would be bankrupt without government assistance and the contracts would have likely been voided.”

Even though AIG has already received more than $170 billion in taxpayer funds to stay afloat, Liddy has refused to forego the bonuses and retention payments, citing contractual requirements. President Barack Obama has instructed Treasury Secretary Timothy Geithner to pursue every legal avenue to withhold payment. But Senate Democrats are sending the signal that they will pursue their own remedy if AIG executives insist on taking the money.

“This shameful act of corporate misconduct must not be allowed to stand. The feds required union workers at GM and Ford to renegotiate their contracts and accept lower pay as a condition for receiving bailout money, so why shouldn’t wealthy executives at AIG be required to do the same?” questioned Harkin.

A copy of the letter, signed by Harkin, Reid and 10 other Democrats, appears below.

March 17, 2009

Edward Liddy
Chairman and CEO
American International Group
70 Pine Street
New York, NY 10270

Dear Mr. Liddy,

We write today to express our outrage at American International Group’s recently revealed multi-million dollar bonus payments. In these perilous economic times, it is unconscionable for the American taxpayer to find out that the very employees responsible for running the company into the ground have now received “performance-based” awards that are hundreds of times as large as the average American’s yearly salary. If these contracts are not renegotiated immediately, we will take action to make American taxpayers whole by recouping all of the bonuses that AIG has paid out to its financial products unit, which, by all accounts, is primarily responsible for the near-failure of the company and the devastating impact on the global financial markets.

For a company that would not exist anymore but for a $170 billion taxpayer funded rescue, it is simply morally unacceptable to spend $165 million on bonus payments, and especially offensive to spend $450 million over the next two years rewarding the employees that helped fuel the nation’s financial crisis. Given the fact that it was the employees in this unit that brought your firm to the brink of bankruptcy and caused such havoc in the world, rewarding them is not only morally reprehensible, but entirely indefensible on any business grounds. It is the grossest perversion of the idea of a “performance bonus” imaginable. In America, we believe in rewarding success. AIG is attempting to reward the most extreme failure.

We insist that you immediately renegotiate these contracts in order to recoup these payments and make the American taxpayer whole. We stand ready to take the difficult, but necessary step of working to enact legislation that would allow the government to recoup these bonus payments, perhaps by imposing a steep tax-- as high as 91 percent--that will have the effect of recovering nearly all of the bonuses that have been paid out since AIG turned to taxpayers for help.

At a time when families across the country are struggling to make ends meet, and hundreds of thousands of Americans are losing their jobs each month, the hubris of this company, and these employees, to demand taxpayer assistance for these bonus payments is simply and plainly unacceptable. We urge you to bring your employees to the table to renegotiate these contracts immediately. We expect that you will report back to Congress on your efforts to recoup these payments in short order. Thank you for your prompt attention to this matter.

Sincerely,

Senators Harkin, Schumer, Reid, Murray, Akaka, Boxer, Carper, Feinstein, Klobuchar, Lincoln, Menendez, Merkley

In the House of Representatives, Democrats announced today that legislation could come as soon as this week to ensure that AIG executives do not receive $156 million in bonus payments to executives who oversaw the collapse of the insurance giant, and that other companies that have received billions of dollars in federal bailout money would not be allowed to pay bonuses to their executives and top employees. Congressman George Miller (D-CA) issued the following statement:

“AIG executives did not earn a bonus, they should not accept a bonus, and if they already did accept it they should return the bonus. If they don't return the bonus money voluntarily, we’re going to get the money back for the taxpayer."

One step Miller is advocating would tax as much as 100 percent of the bonuses AIG executives receive. He co-sponsored legislation today by Rep. Steve Israel (D-NY) to do just that.

Another California Democrat Mike Thompson introduced the “Taxpayer Protection Act,” which would impose a 90 percent tax on all bonuses paid by businesses such as AIG that received rescue money from the government.

“It’s outrageous that some of the same bankers who helped create this economic mess are now going to be rewarded for their failures with taxpayer dollars,” said Congressman Thompson. “By taxing all bonuses paid out by companies that received money to help them stay afloat, we’ll send a message to these folks that business as usual is no longer acceptable. I would prefer to tax these bonuses at 100% but that level is considered confiscatory and doesn’t pass legal muster.”

Currently, the IRS withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million dollars. Under Congressman Thompson’s legislation, any entity that received assistance under the Emergency Economic Stabilization Act of 2008 would be subject to a bonus tax rate of 90 percent.

Congressman Thompson is a senior member of the Ways and Means Committee, which has jurisdiction over all tax-related matters coming before Congress.