March 17, 2009: 03:31 PM ET
(Updates with comments from senators and Liddy meeting lawmakers Tuesday.)
WASHINGTON -(Dow Jones)- Senate Democrats Tuesday were preparing legislation that would levy up to a 91% excise tax on the bonuses paid to executives at American International Group Inc. (AIG) that have stirred outrage.
In a letter sent to Edward Liddy, AIG’s chairman and chief executive, 10 Democratic senators urged him to renegotiate the $165 million paid out in bonuses to executives at the company’s troubled financial products division.
If not, the letter said, lawmakers wouldn’t hesitate to recoup the bonuses through legislation.
“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,” the letter said.
Liddy was installed as head of AIG after the federal government stepped in last year to rescue the ailing insurer.
Senate Majority Leader Harry Reid, D-Nev., reiterated the threat of legislation later Tuesday, saying that if the bonuses aren’t returned, “we’ll have the opportunity in the next few days to pass legislation which I think will pass overwhelmingly.” Reid said the legislation will be introduced within the next 24 hours.
Several Senate Republicans, including Sens. Charles Grassley of Iowa and Olympia Snowe of Maine, are in discussions with Senate Finance Chairman Max Baucus, D-Mont., on potential legislation.
Grassley said that while he hasn’t lent his support to any specific legislative approach at this point, “I want to see that we do everything we can constitutionally to claw back that money.”
Since last autumn, taxpayers have pumped more than $170 billion into AIG to keep the beleaguered company afloat. This past weekend, the company disclosed that around $90 billion of that money had been paid out to third parties it had outstanding contracts with, including large U.S. and international banks.
House Majority Leader Steny Hoyer, D-Md., said he was unsure how legislation could be drafted that would impose a tax against executives working for a particular firm.
He said one possibility would be to pass a law targeting bonuses paid out by any firm that had received taxpayer money through the Troubled Asset Relief Program.
A senior Democratic Senate aide acknowledged that writing a bill with a narrow scope would be difficult, and any effort would likely affect more than just AIG executives.
The aide said one idea being debated would be to impose the tax on firms that had received a certain amount of taxpayer money, or establish a threshold of public ownership at which point the excise tax would be applied.
Since the financial markets came to the brink of collapse last year, the taxpayer has assumed around an 80% ownership stake in AIG. The government has, in effect, taken over Fannie Mae (FNM) and Freddie Mac (FRE), and has also taken equity in a number of large banks.
The federal government’s stake in Citigroup Inc. (C) could reach as high as 36% if it required a further injection of taxpayer money, officials said recently..
Despite his doubts about imposing a tax aimed at reclaiming the bonuses, Hoyer said there’s no question in his mind the executives should give the money back, noting if “they had any common sense at all,” they would.
“If they were at all sensitive to what the American people had done to keep their company afloat … they would simply give this money back.”
House Minority Leader John Boehner, R-Ohio, reserved his anger for the Obama administration’s handling of the AIG situation.
At a press conference Tuesday morning, he questioned why officials agreed to give AIG an additional $30 billion only weeks ago, without ensuring there were sufficient controls in place to limit how the firm used the money.
“I think this is outrageous, and I think the American people are rightly outraged that their tax money is going to pay bonuses to the very people that got this company in trouble,” Boehner said.
The AIG bonuses will provide ample fodder for questions and criticism during Liddy’s scheduled appearance before a U.S. House subcommittee on Wednesday. Members of the House Financial Services panel’s capital markets subcommittee have harshly criticized the bonuses and the rescue of the firm, and are expected to press Liddy on the compensation during the hearing.
Liddy held a series of closed door meetings with lawmakers on Tuesday, ahead of the hearing, in part to discuss some of the lawmakers’ concerns.
-By Martin Vaughan and Corey Boles, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com
