Treasury urged no tax on bonuses

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By Jon Ward

Treasury Secretary Timothy F. Geithner on Thursday admitted 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 during an interview on CNN, confirming 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 he had known anything at all about the bonuses before March 10. The embattled 47-year-old Treasury secretary added that he took "full responsibility" for not catching the bonuses earlier and stopping them from going through, 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.

Sen. John Cornyn, Texas Republican, 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 insitution that Mr. Geithner headed until Mr. Obama named him to the Treasury Department in December.

The New York Fed refused to comment on the accusation that it told the Treasury about the bonuses on Feb. 28, as has been reported by Time magazine.

"What's clear is that the administration should have known about these bailout bonuses a lot earlier. And they should have taken action before they sent AIG another $30 billion earlier this month," Mr. Cornyn said on the Senate floor.

Don Stewart, spokesman for Senate Minority Leader Mitch McConnell, Kentucky Republican, said that the $30 billion infusion was a perfect opportunity to force concessions from AIG in the same way that the administration has negotiated with the United Auto Workers.

"They had 30 billion reasons to renegotiate. That's a whole lot of leverage," Mr. Stewart said.

Mr. Stewart also pointed out that Mr. Dodd's amendment to the stimulus, as it was passed by the Congress, still included language authorizing the treasury secretary to renegotiate executive compensation if he judged it to be "excessive, inconsistent with the purposes of [the stimulus or the Troubled Asset Relief Program], or otherwise contrary to the public interest."

The Treasury Department ducked questions about why the bonuses were not renegotiated under this clause during the agreement to give AIG an additional $30 billion.