Guest Post: The Taxman Cometh, and a Brewing Revolt by Congress?

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Submitted by Lune

Roll Call is reporting (subscription required) that the House and Senate are taking up measures for taxing bonuses paid out by companies in 2009 that accepted bailout money:

House and Senate leaders moved at breakneck speed Wednesday to turn outrage over bonuses at American International Group and other bailed-out companies into retribution, with votes beginning today to impose punishing new tax provisions on the firms.

AIG Chief Executive Officer Edward Liddy said Wednesday that he had asked employees to voluntarily return at least half of the bonus money, but lawmakers dismissed that move as insufficient.

The new tax measures being offered by House and Senate lawmakers differ, but both would apply broadly to employees of companies receiving federal bailout help, not just AIG.

Bonuses paid in 2009 to employees of companies that accepted more than $5 billion in government aid would be subject to a 90 percent tax rate in the House bill, [Chairman of House Ways & Means Cmte, Charles] Rangel said. Employees with total incomes of less than $250,000 would be exempt.

As the House pressed ahead, the Senate Finance Committee was ironing out the details on a proposal to tax bonuses of any firm receiving government rescue funds at 70 percent. The proposal by Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) could be introduced as soon as today.

Grassley also requested an investigation by Treasury Department Inspector General Eric Thorson to look into the agency’s role in the bonuses.

Senators also continued to spar over a provision dropped in the $787 billion stimulus package that would have taxed bonuses paid by bailed-out firms.

“Clearly it has to be done. It should’ve been done,” said one of the sponsors, Sen. Olympia Snowe (R-Maine), adding that she supports Baucus’ plan to impose excise taxes on executive bonuses.

Also interesting to note is that it appears that Congress is growing impatient with Obama and his team, and is moving ahead with measures that Obama’s economic team (namely Geithner and Summers) oppose. You’ll recall that in February, the NY Times reported that:

The Obama administration’s new plan to bail out the nation’s banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president’s top political hands.

In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.

Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid.

He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.

In the end, Congress went along with Geithner and Obama. But now we’re seeing the following (again from Roll Call):

Meanwhile, a parallel effort by the House Judiciary Committee to authorize the attorney general to go after “excessive” bonuses cleared the panel Wednesday and Chairman John Conyers (D-Mich.) said the bill could go to the floor next week, even as Democrats and Republicans on the committee worried it had been rushed too quickly and may be unconstitutional.

Republicans, for their part, trained their ire at the Obama administration and the growing bailout tab, with a few calling on Treasury Secretary Timothy Geithner to resign.

But Minority Leader John Boehner (R-Ohio) said during a Wednesday press conference with Senate leaders that more needs to be known before Geithner’s fate can be decided.

House Financial Services Chairman Barney Frank (D-Mass.) said he is strongly urging the administration, as majority shareholders in AIG, to file a lawsuit against the recipients of the bonuses.

“That’s the cleanest way to do it,” Frank said.

The Massachusetts Democrat, who had earlier suggested a government takeover of the firm, also threatened to demand a subpoena if necessary to obtain names of AIG’s bonus recipients, although Liddy urged him not to do so over fear about the safety of his employees after receiving numerous death threats.

It appears that Congress may finally be growing impatient with Obama. If these Congressional initiatives pass (and Speaker Pelosi seems likely to push these through in the next couple of days), they will be a direct rebuke to Geithner’s vision of providing bailout money with minimal strings attached. While the effectiveness of these new tax plans is yet to be seen (I have no doubt executives will be hiring the best tax lawyers around to skirt the regulations), just the fact that Congress is moving more quickly than Obama on these matters is bad news for the Administration.

Obama still needs credibility with and deference from Congress for coming legislation to deal with the automakers (scheduled to present their viability plans by the end of this month, and likely requiring further federal funds), plus any new initiatives after the G20 meeting, plus whatever random blow-up du jour in the financial world that comes our way. A loss of that credibility would be devastating to his ability to shepard further legislation through Congress. Hopefully, he’s learning his lesson fast and will start taking into account the interests of the common weal rather than just the interests of Geithner and his Wall St. pals.

[Update 1]
Rangel has released the text of his bill: H.R. 1586.
Also, (surprise surprise), the banking industry’s lobbyists are coming out in full force. As reported by Roll Call:

Financial services lobbyists have moved into hyperdrive, engaging in a behind-the-scenes counterattack after lawmakers trained their eyes on all bonuses paid out by struggling banks.

Banks that took millions of dollars in federal bailout money and their trade groups held several conference calls Wednesday to figure out how to respond to the swift-moving bonus bills, according to lobbyists who participated in the calls.

The banks’ main goal is to narrow the breadth of the legislation as much as possible, and they are targeting key players on the House Financial Services Committee and Senate Banking, Housing and Urban Affairs Committee.

One interesting caveat: many lobbyists themselves might come under the tax provisions:

Lobbyists who work for federally bailed-out banks also have a vested interest in seeing the legislation stopped. Most senior lobbyists at banks such as Citigroup, JPMorgan Chase and Bank of America, earned well over the $50,000 bonus threshold in the Senate legislation.

Still, as some of those lobbyists look to exit struggling banks, not everybody is rushing to weigh in.

Some in-house lobbyists are reluctant to use their own political capital to push back on the issue, given the widespread bipartisan anger over bonus payments, according to a financial services lobbyist.

I’ll post an update when I can get a public link for the Senate’s bill.

Folks, if you wish to see this legislation passed, you know what to do. (How many constituent phone calls or letters does it take to outweigh one lobbyist’s opinion? Quite a few, unfortunately…)

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  1. MLM

    What you’ll hear next from the only people who have any clue what’s under the hood at AIG: “Screw you guys, I’m goin’ home!”

    The aftermath is going to be a lot of fun to watch… from my bunker.

  2. doc holiday

    In my very humble opinion, all corporations entangles and co-mingled in TARP and all that shit should re-state earnings going back 5 years, and they should be investigated for back dating options and, while were poking around, use The Patriot Act and all the bogus laws from The Enron Era to take away every penny these crooks ripped off in the last 10 years, by adjusting and distorting GAAP.

    Ok, and as one last wish, I'd like to see FASB, SEC, The FRB & Treasury placed in a bonfire with SIFMA and all those fun banking lobbies like ABA ground into dust, along with shutting down the Chicago Mafia and Gaming Organization that makes a living off selling derivatives to retarded people are called Congressmen (and women).

    Do I have to use foul language to make a point here or just use a prayer?

    Oh God, please destroy these people that are filled with backdated options and loopholes for bonuses that are linked to Satan's offshore trust, where all those fuc-ing tax evading pirate bastards are backed up by The US Treasury!

    Let there be thy justice in a swift way, which will set thee an example of thy anger and let no one doubt your wisdom and the final verdict of your most harsh law…..


  3. Anonymous

    Now they can go home and congratulate each other on a job well done. The world is safe from bonus-embezzlers again!

  4. Anonymous

    As you know, most of the TARP compensation problem is related to this point: Treasury originally published executive compensation standards for CPP last October. The rules generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers.

    Which gets these type of guys off the hook:

    American International Group Inc, which has received $180 billion in taxpayer money to stay in business, created 73 millionaires with bonuses of $1 million or more in 2008, New York’s top legal officer said on Tuesday.

    New York Attorney General Andrew Cuomo, releasing details of a probe into payments at the insurer, said the top bonus recipient was paid more than $6.4 million, and the top 10 received a total of $42 million.

    “These payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG,” Cuomo wrote in a letter to Barney Frank, chairman of the U.S. House of Representatives Committee on Financial Services,

  5. Spitzer for President!

    Former Gov. Eliot Spitzer, who once prosecuted American International Group for accounting fraud, criticized a federal bailout of the insurance giant Wednesday as giving millions of dollars to undeserving banks.

    He said the bailout architects – including Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner – should submit to questioning by Congress about their actions last year.

    Spitzer also downplayed the controversy over bonuses paid to AIG executives, saying that, more importantly, the company had been used as a “conduit” to steer additional federal dollars to Goldman Sachs, Bank of America, Merrill Lynch, JPMorgan Chase and others when they already were getting help.

    “Why is taxpayer money going through AIG to these very large investment banks that are sitting on vast sums of cash . . . that is not being used as it should be used for the sorts of stimulus investments that could actually get our economy going?” Spitzer told WNYC radio in Manhattan. AIG has received $173 billion so far.

  6. MyLessThanPrimeBeef

    For me, change is getting rid of Geithner, for starters.

    As for taxing bonuses, and this is from someone who likes to joke about opening a 25HR Fitness Center and the mathematical impossibility of giving 110%, so beloved by modern workers, I think a proper tax rate would 150%.

    So for example, if you received a $1 million bonus, your tax liability is $1.5 million.

  7. Anonymous

    The problem with the bill is that anything you make over 250K goes to the government. Most of the big tarp recipients pay bonuses in Jan/Feb and thus thousands of mid to high level employees have already made 250K this year.

    Would you work for free?

  8. Spitzer for President!

    Treasury officials explicitly allowed AIG bonuses

    Treasury Department officials negotiated a $40-billion deal that explicitly allowed the company to set aside tens of millions of dollars for executive bonuses and richly reward individual senior executives without restrictions or any concern that the government might interfere.

    But the record shows that on Nov. 25, Treasury Department officials signed a securities agreement to provide $40 billion to AIG in exchange for preferred stock and rights to buy common stock. In that 586-page document, the agency explicitly allowed AIG to pay individual executives as much as 3.5 times their base salary without any approval.

    The agreement also allowed AIG to set aside as much money for such bonuses for 2008 as it had in 2006, a year when the insurance giant was raking in vast amounts of profit from a financial bubble that would later maim the world economy.

  9. bg

    It is very dangerous to have the government passing anger-management excise taxes. We are loosing a dangerous trend.

    It would have been so much better to have nationalized the companies before the looting started.

  10. Anonymous

    Anon at 1:17 wrote: “Would you work for free?”

    It could be part of a work-release program from prison.

  11. doc holiday

    Ok, keep your shirts on, Obama is all about change and he can change this shitty deal with TARP, relax — my man is on it, as we speak:

    FYI: In insurance, rescission is the termination of a contract from the beginning (as if it never existed). The insurer has the right to rescind a policy due to concealment, material misrepresentation, or material breach of warranty.

    In American government, rescission authority rests with the President. This authority was granted in the Congressional Budget and Impoundment Control Act of 1974. The President can force Congress to vote on rescinding (or permanently withholding) already appropriated funds.[2] The average amount Presidents have requested since 1974 has been approximately $15 billion.

    Do I have to run America, or what?

  12. Anonymous

    Congressional Budget and Impoundment Control Act of 1974

    Title X of the law, also known as the Impoundment Control Act of 1974, specifies that the President may propose to Congress that funds be rescinded. If both the Senate and the House of Representatives have not approved a rescission proposal (by passing legislation) within 45 days of continuous session, any funds being withheld must be made available for obligation. Congress is not required to vote on such a proposal and has ignored most Presidential requests. In response, some have called for a line item veto to strengthen the rescission power and force Congress to vote on the disputed funds. The Act was passed in response to Congressional feelings that President Nixon was abusing his ability to impound the funding of programs he opposed, and effectively removed the historical Presidential power of impoundment.

    I want my fucking money back, you jerks!

  13. Anonymous

    It is precisely now when “financial services lobbyists have moved into hyperdrive, engaging in a behind-the-scenes counterattack after lawmakers trained their eyes on all bonuses paid out by struggling banks”, that in a truly democratic government, the authorities would move in to arrest and imprison anyone exerting special interest pressure against the peoples’ representatives. But in our system, owned as it is by these interests, these impositions are considered a “right” and an instrument of “free expression”. One saw the same bullying applied by AIPAC in the Charles Freeman affair just last week. AIPAC ought to be required to register as an agent of a foreign power, one that has conducted espionage against the people of the United States and whose former leader, Rosen, is under indictment for espionage right now. If special interest lobbies will not voluntarily dissolve themselves, the same anger that has been propelling opposition to the bail-outs and bonuses eventually just might find a way of getting all the way through to the heart of our problems and, physically, by hand, do the dissolving for them.

  14. Anonymous

    Impoundment is the refusal of presidents of the United States to spend money that has been appropriated by the United States Congress. All of the presidents up to Richard Nixon have used this power, which is regarded as inherent to the office. President Thomas Jefferson first used the power of impoundment in 1801. He refused to spend appropriated funds when he impounded $50,000 for United States Navy gunboats. He said in 1803 that “[t]he sum of fifty thousand dollars appropriated by Congress for providing gun boats remains unexpended.

    The Treasury Secretary had immediate access to the first $250 billion. Following that, an additional $100 billion was authorized by the President. The last $350 billion is subject to Presidential approval and Congressional review.

  15. doc wants the money back today!

    And another thing: Re: "even as Democrats and Republicans on the committee worried it had been rushed too quickly and may be unconstitutional.'

    That's no big deal, the same thing happened in the last Great Depression, with a few things dealt with as being unconstitutional, but so what … deal with that crap later and deal with harsh justice today and kill the cancer before it spreads further.

    Item two: The lobby groups should be pounded into submission and destroyed as the parasites they are.

    The structure of this tax should be imposed on every penny and include every lobby group and law firm and make it highly unprofitable and dangerous to steal Tax Payer Revenues! Every lawyer who is out to make money on TARP should think 2009 times before they engage their services to defend the fraud associated with these crimes!

    Also see: Also today, the Governor ordered Consumer Protection Commissioner Jerry Farrell, Jr. to investigate the bonuses given out by AIG to determine if the bonuses can be voided under the Connecticut Unfair Trade Practices Act (CUTPA). Governor Rell directed Commissioner Farrell to subpoena the employment contracts that AIG has cited to justify the bonuses. Because AIG’s financial products subsidiary is located in Wilton, AIG has cited Connecticut General Statutes, Section 31-72, as obligating AIG to pay the bonuses.

    >> I want my money back!

  16. Not me baby

    The Time Has Come To Kill The Cancer; First, tax the shit out of them and then sue them for fraud

    1. CUTPA also provides that a successful plaintiff who establishes that the defendant acted with reckless indifference to the rights of others or in an intentional and wanton violation of those rights may recover punitive damages.

    2. In determining whether an act or practice is unfair, the Supreme Court of Connecticut has adopted the “cigarette rule” of the Federal Trade Commission. The three factors of the cigarette rule are as follows: (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise; (2) whether it is immoral, unethical, oppressive, or unscrupulous; and (3) whether it causes substantial injury to consumers, competitors, or other businessmen.

    The Supreme Court has set forth that the Federal Trade Commission has identified four primary categories of practices that have been considered unfair: (1) withholding material information; ..

    3. Any “person” who suffers an “ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by [CUTPA] may bring an action to recover actual damages.” See Conn. Gen. Stat. § 42-110g(a). “Person” is defined as “a natural person, corporation, limited liability company, trust, partnership, incorporated or unincorporated association, and any other legal entity.” See Conn. Gen. Stat. § 42-110a(3).

    Additionally, the Commissioner of Consumer Protection may order an investigation into any alleged violations of CUTPA, and hold hearings and issue cease-and-desist orders to any party in violation of CUTPA. See Conn. Gen. Stat. § 42-110d. The Connecticut Attorney General may seek temporary and permanent injunctive relief for CUTPA violations. See Conn. Gen. Stat. § 42-110d.

    Mooohawahahahaha, AIG is mine!

  17. Maff

    Anon 1:27

    Now THAT is the right answer to the “would you work for free?” question. You really nailed it!

  18. Richard Kline

    So Lune, good to see you on this one. We’ll have a lot more action in a few months once things really go sour and Congress begins to feel the fiery breath of the voters chuffing up their knickers.

    To me the bonus issue amounts to petty larceny in all this. Yes, its a *yawn* outrage, but the real theft is the pipeline from the Treasury to the counter-parties. I’m completely with Spitzer on this. (And I for one am glad to have him back and talkin this up. He may very well resurrect a career of some kind.)

    I seldom make predictions as opposed to blathering hypotheses, but I do have one: if Beau Prez doesn’t get off the Bank Stealout Bandwagon mighty damn quick, his approval rating will be in the teens by the time the leaves hit the ground in 09. This bailout is criminal, a failure overall in supporting the economy, and good for nothing except making the financial aristocracy whole at the expense of absolutely everyone else in their society. Obama has endorsed that policy, a hugely stupid move when he could have broken with the financial fascists after getting sworn in. He has to get this one right or the rest doesn’t really matter; so far he doesn’t ‘get it,’ and by the time he does it will very likely be to late for him, and all the harder on us.

  19. Dan Duncan

    Here’s a letter of my Representative that I’m generously posting for all else to use:

    Dear Congress Person,

    I don’t give a shit about the bonuses. In fact, the only reason I think you “give a shit” is to distract your constituents from the matter at hand:

    Neither you, nor your peers, has a clue as to how to provide effective leadership.

    In conclusion Congress Person, F* You for acting as if Bonus Legislation is anything more than an attempt to deflect our attention away from what is just another disgusting example of the impotence of your governance.


  20. DownSouth


    Really a great post, reinforced by comments by Richard Kline at 6:57 a.m.

    Some people saw this coming. One was NY Times columnist Frank Rich, who a month or two ago wrote a column warning Obama that if he didn’t get out ahead of this thing, he would be washed away by a tidal wave of populist backlash.

    Well he didn’t get out ahead of it, apparently believing he could defend the financial status quo, and as a result his presidency may already be over.

    Either Obama was bought and paid for by the finance industry, or he is incredibly stupid. He’s not losing support from the right, which he never had. He’s losing support from the left, which forms his political base.

  21. DownSouth

    Richard Kline said: “To me the bonus issue amounts to petty larceny in all this.”

    True, but in molding public opinion, the importance of symbolism cannot be understated.

    I think the communications departments of most universities teach this. I wish I had some good backup references to cite, but don’t have anything at my fingertips to offer.

  22. Merry-will-go-round

    Lune & others:

    #1: As an employee of the Federal Gov't, I can assure you that the IRS does not have the necessary resources to enforce.
    #2: See 02/27/09 NY Times piece about Goldman Sachs' loans to employees that are designed, in part, to help employees pay taxes on prior year's bonuses.
    #3: Write your congressmen to let them know that you are sick and tired of their dog-and-pony shows (such as the proposed AIG bonus claw-back legislation). Instead tell them to progressively tax the hell out of all assets and income.

  23. F. Scott FitzHoliday

    Sins Of The Flappers (Part One of 200)

    The DNA-like generational culmination of greed can sometimes skip a generation, or perhaps one generation will become entangled in the bloodshed of war, while another generation faces a plague or health-related challenge. Who can say why God rolls the dice or why the river flows the direction it does, but life, like a coin, has many sides, many ups and downs, as if it is a ritualistic dance or right of passage.

    Looking back at a page from history, one can ponder the assumed innocence of flappers that were engaged in a dance of progress, which reflected a shift in permissive social boundary, where society gave in to a new way of living, which included reckless speculation on Wall Street. Perhaps the stream of endless partying was a reflection of the flow of ticker tape which was that generations tsunami of cheap and easy cash flow.

    The Great Depression serves as a reminder that nothing lasts forever and the premise that generational greed has generational consequences.

    Although awkward in its connection, fast forwarding from flappers to The Nixon Era marks an interesting political change of tide from post FDR recovery to Nixon’s sweeping abuse of authority in covering up Watergate crimes. Watergate as a watermark, marked a time when congress slowly united behind the common cause for justice — culminating with Nixon’s resignation and disgrace — a condition which was recently denied Bush, but why?

    I think Bush and his corrupt administration represent generational change, which can be linked to of all people, Bill Gates and Warren Buffett. The post Nixon America, up until mid-1990 was not a great period of prosperity, but more of a slow transition that built up to the Information Age and the ubiquitous tsunami of desktop publishing that would build into The Dotcom Bubble of 2000.

    The Microsoft monopoly and that abuse of global power resulted in a generational race for billionaires, who were able to sculpt the economic landscape and influence laws by enriching lobby groups that would in turn influence American antitrust laws and financial regulations. Hence, the race for greed, with Buffett and Gates as poster boys for excess, was inspiration to re-model and modify the framework of financial structures and the laws that connected one card, to another card, to a point where we are now at, which is the point of generational financial systemic collapse. The house of cards that we live in has been blessed by a generation of flapper-like legislators that have been either blind or corrupt to the damage they have done to America.

    So now, here we are in an era of generational change, looking back and looking forward, caught like deer in the headlights of reality, somewhat aware that things will never be as good as they were, but yet hopeful that there will be hope and that this era will not become more of a nightmare than it already is. Is there still time to change the road were on, or is this journey now just a story of decay, where things do fall apart and splinter for us all? History offers a rich mix of both good times and bad times woven together into the spirit of our lives — we can analyze previous challenges that tested generational wills to survive — but here we are in the midst of our generational era of limitless corruption and unbounded greed.

    Americans are currently served by elected officials, who worship the excessive greed of Buffett and Gates on a daily (if not hourly) basis; our legislators serve their masters well, by donating cold hard cash to their lobby entities that are bred for the sole purpose of undermining the integrity of justice in America. Americans, living in The Information Age, are failing to be active in the pursuit of life, liberty and justice! Why?

    ** Warning this was not proofed or written with care … Good grief, I I think I have better things to do, but maybe not…

  24. Mara

    @doc holiday “Do I have to run America, or what?”

    –Yes! Please do. Bring Yves and Brooksley Born along as well. Fire Geithner and Bernanke. Imprison Paulson. Tax audits for all board members and top 20 corp officers for all corps that took any govt $$$.
    And for the person who worked for the IRS that they had no resources for enforcement: you’ve got to be kidding me. Agents can come remove belongings and impound houses for Willie Nelson and Redd Foxx, no problem. Heck, you had agent Jeff Novitski spend 7 years on Barry Bonds’ ass re steroids, not back taxes. I think we simply have a lack of will to use our disgustingly abusive powers on those who most richly deserve it.

  25. Anonymous

    Since AIG was a “pass through” to Goldman Sachs (and others), those firms technically did NOT receive Government Funds.

    I bet GS paid about a billion in bonuses (rcvd about 20B thru AIG) … that will not be subject to this new law.

  26. Anonymous

    Having Treas throw Sen. Dodd under the bus might turn out to be a huge, huge, huge blunder for Geithner. Congress is going to be much less likely to modify its position if they think they’ll just be made the fall guy down the road.

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