Continued from page 1

The veterans representatives said the president told him that he wanted to pursue the proposal because it would generate $540 million in budget savings - a number the White House has not confirmed.

But when the administration dropped the proposal two days later, veterans groups immediately praised the president for his change of heart.

“The important thing is this issue is behind us and we can move forward,” Veterans of Foreign Wars spokesman Joe Davis said Thursday.

On Tuesday, White House spokesman Robert Gibbs did not dispute that the plan was floated, but said no decisions had been made.

Hours after the House passed a confiscatory tax on the executive bonuses of companies that take bailout money and Mr. Geithner took responsibility for allowing the bonuses, Mr. Obama told Mr. Leno that his Treasury secretary was “on the hot seat,” but was doing an “outstanding job.”

During a CNN interview, Mr. Geithner acknowledged that his staff encouraged lawmakers to take out a key provision in last month’s stimulus that would have taxed executive compensation in an attempt to discourage companies such as AIG from handing out excessive bonuses while receiving billions of taxpayer dollars.

“What we did is just express concern about the vulnerability of a specific part of this provision,” Mr. Geithner said.

He confirmed that his staff said retroactive penalties would spark lawsuits.

Mr. Geithner continued to say that he did not know about AIG’s planned $165 million in bonuses for top employees until March 10 but left room for the possibility that he had some inkling about the bonuses prior to that.

“On Tuesday, I was informed about the full scale and scope of these specific bonus problems,” he said.

The Treasury Department and the White House did not answer queries about whether Mr. Geithner’s comment meant that he had known something more general about the bonuses before March 10.

The embattled 47-year-old secretary added that he took “full responsibility” for not catching the bonuses earlier and stopping them from proceeding, one day after Sen. Christopher J. Dodd, Connecticut Democrat, said his staff had removed language from the stimulus mandating retroactive penalties on big bonuses.

But he and his department faced questions from Republicans why they did not renegotiate the bonuses earlier this month when they gave AIG an additional $30 billion in taxpayer bailout funds, bringing the total given to AIG since last fall to more than $170 billion.

Mr. Cornyn said Mr. Geithner and his staff knew about the bonuses before they rolled out the additional $30 billion in aid on March 2.

“The Federal Reserve Bank of New York says they notified Treasury in February,” Mr. Cornyn said, referring to the institution that Mr. Geithner headed until Mr. Obama named him to the Treasury Department in December.

Story Continues →