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Senate to vote on bonus tax after House takes action


Yesterday, the House overwhelmingly approved a 90 percent tax on bonuses at companies receiving bailout funds. The Senate is expected to vote on a similar measure next week, Bloomberg reported.

The legislation is in response to an outrage over $165 million that American International Group Inc. (AIG) paid in bonuses last week after receiving $173 billion in bailout funds from the government. President Barack Obama said he was “stunned” by the bonuses and vowed to use any means possible to recoup the money. Nineteen state governments are looking into AIG’s bonuses as well.

The House bill would tax employees earning more than $250,000 who received bonuses from companies that received more than $5 billion in aid from the Troubled Asset Relief Program (TARP). It would apply to bonuses given after Dec. 31, 2008.

The Senate’s bill, proposed by Senate Finance Committee Chairman Max Baucus and Iowa Sen. Charles Grassley, would place a 70 percent tax on bonuses, half of which would be paid by employees and half by their companies. It also would restrict the amount of income that can be deferred from tax to $1 million.

The Senate’s vote may come too quickly for the financial industry to make a case against the bill, but a representative of the financial services industry said that the industry would argue that the new tax would affect many workers, hurt families and undermine the economic recovery at banks receiving TARP funds.

In a separate move yesterday, Grassley asked Fannie Mae and Freddie Mac to justify the retention bonuses paid when they were losing money. Fannie Mae awarded $4.4 million in retention bonuses to four of its top six executives last year and Freddie Mac will release bonus payments to top executives in April.

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