WASHINGTON The House overwhelmingly approved on Thursday a near total tax on bonuses paid this year to employees of the American International Group and other firms that have accepted large amounts of federal bailout funds rattling Wall Street as lawmakers rushed to respond to populist anger.
Despite questions about the legality of the retroactive 90 percent levy Democrats and some Republicans said the tax on bonuses for traders executives and bankers earning more than $250000 was the quickest way to show angry Americans that Congress intended to recoup the extra dollars. Even backers of the measure noted it was an extraordinary step.
The House vote sent some employees into a panic about the prospect of in effect having to give up money they might already have spent. And it had regulators fearing it could undermine the Treasurys efforts to stabilize the financial system if banks tried to flee the bailout program or if other firms refused to participate in coming rescue operations to protect their bonuses some executives said.
Vikram S. Pandit chief executive of Citigroup lobbied against the legislation in a meeting Thursday with the Senate majority leader Senator Harry Reid according to an industry official.
But the rush to curb the bonuses by lawmakers many of whom have previously been torn about limiting executive compensation reflected Congressional anxiety about heightened public dismay over the bailout. The Senate is expected to consider a similar tax on bonuses but has some differences with the House which could slow final action.
In a statement President Obama suggested he was supportive of the legislation urging Congress to deliver a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated."
In an appearance later on The Tonight Show" on NBC Mr. Obama was measured in his reaction saying he understood that Congress was responding I think to everybodys anger" but that the best way to handle the situation was to make sure youve closed the door before the horse gets out of the barn."
The legislation would apply to bonuses paid to executives at companies holding at least $5 billion in bailout money and would essentially wipe out the phenomenal paydays that have been a tradition on Wall Street at least until the firms reduce the amount they owe taxpayers to less than $5 billion.
According to a tally by The New York Times of bailout recipients employees at 11 institutions including Goldman Sachs Bank of America Citigroup Wells Fargo and JPMorgan Chase would face restrictions immediately.
The current version of the Senate bill would apply to an even wider array of companies. It would tax bonuses at companies that received as little as $100 million in federal bailout assistance though at a lower rate.
In response financial institutions that have received federal bailout money mounted a broad assault Thursday on the House legislation which was opposed by leading Republicans. But nearly half of House Republicans joined Democrats in supporting the measure which was approved by a 328-to-93 vote.
Its backers said the companies had forced Congress to act by inexplicably handing out generous rewards to employees after tapping taxpayer funds to survive an economic calamity brought on by irresponsible and risky executive decisions. A.I.G. gave out $165 million in bonuses saying the payments were essential to retain employees who could help the company sort out its financial problems.
Have the recipients of these checks no shame at all?" asked Representative Earl Pomeroy Democrat of North Dakota. Summing up his personal view of the so-far-anonymous A.I.G. executives he said: You are disgraced professional losers. And by the way give us our money back."
But several executives at Wall Street banks said they were being unfairly caught up in a hasty response by Washington that would ultimately deliver a sharper blow to their companies than to A.I.G. which set off the furor. One bank executive said employees were coming into his office in tears.
Several banks are considering refusing to participate in government financial rescue programs if the bill passes according to a person briefed on the banks plans. Hedge fund and private equity firms may also be hesitant to work in partnership with the government to purchase bad assets from banks a central component of the Treasury Departments coming financial recovery plan if they think the government might later add restrictions on their pay.
If this stands you will destroy the value of institutions where the government is an owner" said Orin Kramer who runs a hedge fund and helps oversee the New Jersey pension plan.
You will drive people away from being willing to do business with the government" said Mr. Kramer a prominent fund-raiser for Mr. Obama.
Members of both parties raised doubt about whether the legislation could survive a court challenge saying it was tantamount to a retroactive bill of attainder" which is banned by the Constitution. Even backers of the bill acknowledged it amounted to an extraordinary use of tax law.
Click here to read the rest of the story
WASHINGTON The House overwhelmingly approved on Thursday a near total tax on bonuses paid this year to employees of the American International Group and other firms that have accepted large amounts of federal bailout funds rattling Wall Street as lawmakers rushed to respond to populist anger.
Despite questions about the legality of the retroactive 90 percent levy Democrats and some Republicans said the tax on bonuses for traders executives and bankers earning more than $250000 was the quickest way to show angry Americans that Congress intended to recoup the extra dollars. Even backers of the measure noted it was an extraordinary step.
The House vote sent some employees into a panic about the prospect of in effect having to give up money they might already have spent. And it had regulators fearing it could undermine the Treasurys efforts to stabilize the financial system if banks tried to flee the bailout program or if other firms refused to participate in coming rescue operations to protect their bonuses some executives said.
Vikram S. Pandit chief executive of Citigroup lobbied against the legislation in a meeting Thursday with the Senate majority leader Senator Harry Reid according to an industry official.
But the rush to curb the bonuses by lawmakers many of whom have previously been torn about limiting executive compensation reflected Congressional anxiety about heightened public dismay over the bailout. The Senate is expected to consider a similar tax on bonuses but has some differences with the House which could slow final action.
In a statement President Obama suggested he was supportive of the legislation urging Congress to deliver a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated."
In an appearance later on The Tonight Show" on NBC Mr. Obama was measured in his reaction saying he understood that Congress was responding I think to everybodys anger" but that the best way to handle the situation was to make sure youve closed the door before the horse gets out of the barn."
The legislation would apply to bonuses paid to executives at companies holding at least $5 billion in bailout money and would essentially wipe out the phenomenal paydays that have been a tradition on Wall Street at least until the firms reduce the amount they owe taxpayers to less than $5 billion.
According to a tally by The New York Times of bailout recipients employees at 11 institutions including Goldman Sachs Bank of America Citigroup Wells Fargo and JPMorgan Chase would face restrictions immediately.
The current version of the Senate bill would apply to an even wider array of companies. It would tax bonuses at companies that received as little as $100 million in federal bailout assistance though at a lower rate.
In response financial institutions that have received federal bailout money mounted a broad assault Thursday on the House legislation which was opposed by leading Republicans. But nearly half of House Republicans joined Democrats in supporting the measure which was approved by a 328-to-93 vote.
Its backers said the companies had forced Congress to act by inexplicably handing out generous rewards to employees after tapping taxpayer funds to survive an economic calamity brought on by irresponsible and risky executive decisions. A.I.G. gave out $165 million in bonuses saying the payments were essential to retain employees who could help the company sort out its financial problems.
Have the recipients of these checks no shame at all?" asked Representative Earl Pomeroy Democrat of North Dakota. Summing up his personal view of the so-far-anonymous A.I.G. executives he said: You are disgraced professional losers. And by the way give us our money back."
But several executives at Wall Street banks said they were being unfairly caught up in a hasty response by Washington that would ultimately deliver a sharper blow to their companies than to A.I.G. which set off the furor. One bank executive said employees were coming into his office in tears.
Several banks are considering refusing to participate in government financial rescue programs if the bill passes according to a person briefed on the banks plans. Hedge fund and private equity firms may also be hesitant to work in partnership with the government to purchase bad assets from banks a central component of the Treasury Departments coming financial recovery plan if they think the government might later add restrictions on their pay.
If this stands you will destroy the value of institutions where the government is an owner" said Orin Kramer who runs a hedge fund and helps oversee the New Jersey pension plan.
You will drive people away from being willing to do business with the government" said Mr. Kramer a prominent fund-raiser for Mr. Obama.
Members of both parties raised doubt about whether the legislation could survive a court challenge saying it was tantamount to a retroactive bill of attainder" which is banned by the Constitution. Even backers of the bill acknowledged it amounted to an extraordinary use of tax law.
Click here to read the rest of the story
