By Laura Litvan and Alison Vekshin
March 24 (Bloomberg) -- Senate Democrats are making a “major re-evaluation” of a proposal to heavily tax bonuses paid by American International Group Inc., in part because of President Barack Obama’s concerns, the Senate Finance Committee chairman said.
Panel chairman Max Baucus said legislation he introduced last week is opposed by some senators who believe it is arbitrary and others who don’t like the idea of using taxation to force return of the bonuses. Obama said last weekend the U.S. shouldn’t “govern out of anger” on the issue.
“You add it all together and there are lots of different ideas,” Baucus, of Montana, told reporters today in Washington. “It’s kind of all a big jar of marbles right now. Shake it up and see what the patterns are.”
Action on the legislation is slowing after the House last week quickly approved a measure to impose a 90 percent tax on bonuses at AIG and other companies receiving federal bailouts. The Senate’s version would create a 70 percent tax, to be split evenly between companies and employees.
House Democratic Leader Steny Hoyer today said Congress may not need to act at all if AIG employees continue to return the payments.
New York Attorney General Andrew Cuomo said yesterday nine of the top 10 recipients at AIG agreed to give back their checks and half of the $165 million in bonuses may be returned. Hoyer said that shows the House legislation is having a good effect.
“If we see the return of the payments, there won’t be anything to tax,” Hoyer, of Maryland, told reporters. Legislation “may not be necessary.”
More Time to Study
Yesterday, Senate Majority Leader Harry Reid, a Nevada Democrat, said he would give Republicans more time to study the Senate’s bonus-tax plan. AIG got $182.5 billion in U.S. bailout funds, according to the Government Accountability Office.
Republican opposition to the proposal in the Senate is more uniform than it was in the House, where party members split almost evenly in the vote on the chamber’s bonus-tax bill last week, said the party’s top Senate vote counter, Jon Kyl of Arizona. While Republicans are in the minority in the Senate, they can more easily block legislation with procedural hurdles.
If Reid “wants this bill, he’s going to have significant opposition,” Kyl told reporters yesterday. He also said he was surprised to find calls from constituents running six to one against the measure.
National Service, Budget
This week and next, Reid said, the Senate will work on a national-service bill and Obama’s budget proposal before Congress begins a two-week recess on April 6. Reid spokesman Jim Manley said unanimous agreement would be needed to proceed with the bonus-tax legislation before the recess.
“This is an issue that is not going away,” Reid said today, but he also noted that more ideas are emerging from Baucus’s committee and that he will “continue to keep an eye” on the legislation.
Representative Chris Van Hollen, a Maryland Democrat, said in an interview today the delay was “a little breather, a little time-out, to see if there’s an alternative way.” He added, “We are certainly open to other suggestions.”
In the meantime, House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said his committee will proceed tomorrow with legislation to restrict compensation at companies that received capital infusions under the Treasury’s Troubled Asset Relief Program.
The legislation will repeal a provision included by Senate Banking Committee Christopher Dodd, a Connecticut Democrat, in the $787 billion stimulus legislation last month, said Frank. The provision has been blamed for allowing the AIG bonuses to be paid.
15 of Top 20
Cuomo said 15 of the top 20 bonus recipients at AIG agreed to return their entire bonuses, accounting for $30 million. Employees have agreed to give back $50 million in all, and it might be possible to recoup $80 million, Cuomo said.
“Hopefully, this is a problem that can be resolved in a different way,” said Conrad, who said “we’ll see,” when asked whether the Senate might drop the AIG bonus bill.
On March 19, the House voted 328-93 for its measure. It would affect employees with household income of more than $250,000 a year who received bonuses from companies that took more than $5 billion in aid from the Troubled Asset Relief Program.
Voting for the bill were 243 Democrats and 85 Republicans; opposing it were 87 Republicans and six Democrats.
Obama said on CBS’s “60 Minutes,” aired March 22, that “as a general proposition, you don’t want to be passing laws that are just targeting a handful of individuals.”
Comments From Republicans
Comments from a stream of Republicans yesterday, some quoting remarks by Obama over the weekend, indicated the cooperation Reid said he needs for action on the Senate bill won’t be forthcoming.
Senator Susan Collins of Maine, who helped shape and provided one of the three Republican Senate votes for Obama’s $787 billion stimulus last month, criticized the bonus-tax bill as “too broad” and likely to have “unintended, seriously damaging consequences.”
She said it would punish one of her constituents who “had nothing to do with any of the risky decisions made by anyone” but who happened to work for a company that was bought by Wachovia, which had received TARP funds.
Senate Republican Leader Mitch McConnell of Kentucky also said the Senate “ought to slow down” on the bonus-tax bill and think through its ramifications. “We need to be careful,” he said.
The delay in the Senate will give the financial services industry more time to build a case against the legislation.
In a letter to lawmakers yesterday, Steve Bartlett, president and chief executive of the Financial Services Roundtable, said the taxes “will undermine the recovery effort.”
“The events of last week could have a chilling effect on participation in the toxic-asset purchase plan released this morning,” Bartlett wrote.