- The Washington Times - Thursday, March 19, 2009

Working at breakneck speed, the House of Representatives passed a bill Thursday to impose a 90 percent tax on bonuses given to top officials at companies that received tens of billions of dollars of taxpayer bailout money.

The 328-93 vote came just days after most lawmakers learned that American International Group had paid out bonuses to more than 400 officials even as it was receiving more than $170 billion in government loans and investment. Many of the bonuses went to executives in the financial unit that brought the huge insurance firm to the brink of insolvency.

“We heard from our constituents — do something and con something right now,” said Rep. Chellie Pingree, Maine Democrat.

But the tightly targeted tax bill, which places a special federal tax on bonus money given out since Jan. 1, could face constitutional questions over the use of the taxing power to override legal contracts and to target retroactively a specific group of taxpayers.


Despite overwhelming popular and congressional anger over the AIG bonuses, many Republicans attacked the tax bill as an attempt by the Democratic majority to paper over the mistakes of the recent taxpayer bailouts and shield the Obama administration from criticism.

“This bill is nothing more than an attempt for everybody to cover their butt up here,” said House Minority Leader John A. Boehner, Ohio Republican. Rep. Joe Wilson, South Carolina Republican, called the tax bill “an unconstitutional joke of a bill.”

Legal scholars are divided on the constitutionality of the tax measure, but critics called it a bill of attainder — a punitive, targeted tax specifically forbidden by the constitution.

“It basically targeted on a small group of people,” Sen. Judd Gregg, New Hampshire Republican, told the Bloomberg News service.

Because the House Democratic leaders rushed the bill to the floor, the tax measure had to win a two-thirds majority under special rules suspending the regular parliamentary order. Democrats backed the bill on a 243-6 margin, while 85 Republicans supported the bill and 87 opposed it.

House Ways and Means Committee Chairman Charles B. Rangel, who introduced the bill Wednesday night, said the purpose of the bonus taxes as “to stop the thievery at the taxpayers’ expense.” He said the tax provisions would affect not just AIG, but any company that has received over $5 billion in federal bailout aid, including mortgage giants Fannie Mae and Freddie Mac.

“I did not think that would be controversial,” he said.

The House bill applies to bonuses paid out since Jan. 1. Recipients would not pay income tax on the bonus but would face instead a special 90 percent federal tax. The tax applies to executives with family incomes of $250,000 or more.

The tax could be avoided if the recipient returns the bonus money during the year. AIG Chief Executive Officer Edward Liddy told a House hearing Wednesday that some AIG employees already volunteered to return some or all of their bonuses since the controversy broke.

The Senate Finance Committee is drafting its own bill that would place an excise tax on AIG for the cost of its bonuses and a separate 35 percent income tax on the executives who received the bonuses, but it was unclear how quickly the chamber would take up a bill.

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