Senate Push Over AIG Bonuses Appears to Lose Steam

By and | March 24, 2009

U.S. Senate Majority Leader Harry Reid vowed Monday to push to recoup millions of dollars in executive bonuses at taxpayer-funded insurer American International Group, but the legislation appeared to be losing momentum in the Senate.

President Barack Obama voiced concern about proposals to slap recipients with punitive taxes, and some of the executives affected gave the money back, leading some senators to suggest looking for alternatives to legislation.

“Hopefully this is a problem that can get resolved in a different way” than legislation, Democratic Senator Kent Conrad, chairman of the chamber’s budget committee, told reporters after the news broke that nine of 10 executives who received top bonuses have agreed to return them.

A little later, Reid’s spokesman Jim Manley also said more time was needed to decide what to do. “In light of the concerns raised by the administration and Senate Republicans we are going to need some additional time to discuss next steps,” Manley told Reuters.

One key Republican, however, warned against backing down, although it was not clear whether he knew that some AIG bonuses had been returned. Senator Charles Grassley expressed indignation that Obama was skeptical of the need for legislation.

‘SPECIAL INTERESTS’

“I think all the special interests that the president has said he’s fighting are raising their ugly head, and he’s submissive to them,” Grassley told reporters outside the Senate.

Earlier Monday, before New York’s top legal officer said that nine of the 10 AIG executives who received top bonuses had agreed to return them, Reid told the Senate that the bonuses had to be reclaimed.

“We will continue to work to right this egregious misuse of taxpayer dollars,” said Reid. “With Republican cooperation, we can quickly and responsibly return these funds to the American people.”

His comments came after days of public outrage over $165 million in employee bonuses paid out by the Connecticut-based company, which has received nearly $180 billion in federal aid. Both political parties appear divided over plans to turn to the tax code to recoup the cash.

The House of Representatives passed its own bill last week aiming to impose a 90 percent tax on bonuses for certain executives at companies that receive taxpayer bailouts.

But some analysts have said such moves could be difficult to enforce. They may be open to legal challenges and could be counterproductive if they lead to an exodus of experienced professionals from financial companies.

WAIT UNTIL NEXT WEEK

Republican Senator Jon Kyl proposed the Senate wait until at least next week before it takes any votes on the bonus issue. “I urge my colleagues to take a deep breath here, talk to the administration, hold a hearing and see if there isn’t a better way” than a punitive tax, he said.

Kyl suggested that Treasury Secretary Timothy Geithner might have the authority, under terms of the $787 billion economic stimulus package, to claw the money back. And Democratic Senator Carl Levin told reporters he was looking into the possibility that the government already had the power to get the money back.

The House bill would apply to executives with incomes over $250,000 who worked for AIG or other companies that got at least $5 billion in government aid. That could ensnare others who receive federal help, such as mortgage financing company Fannie Mae.

The alternative Senate bill — proposed by Grassley and fellow Republican Olympia Snowe and Democrats Max Baucus and Ron Wyden — would impose a 70 percent excise tax on the bonuses.

Baucus told reporters Monday evening that he had been talking to the White House about the matter, but gave no details.

Obama, who has said he shares the public anger over the bonuses, has also voiced concern about using the tax code to punish a group of people, which could raise constitutional questions.

“We can’t govern out of anger. We’ve got to try to make good decisions based on the facts,” Obama told CBS’s “60 Minutes” program. “As a general proposition, you don’t want to be passing laws that are just targeting a handful of individuals.”

(Additional reporting by Deborah Charles and Richard Cowan; editing by Mohammad Zargham)

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