- The Washington Times - Tuesday, March 24, 2009

Rank-and-file Senate Democrats on Monday helped put the brakes on their own congressional leaders’ frenzied dash to enact new taxes to take back executive bonuses at bailed-out Wall Street firms.

Democratic defectors echoed President Obama‘s and business leaders’ concerns about the tax bill’s legality and chilling effect on struggling financial firms. Critics said the tax penalty could scare banks from participating in the Treasury plan announced Monday to buy toxic assets in order to unfreeze credit markets.

“I think the president is right. We shouldn’t be making decisions here out of anger,” said Senate Budget Committee Chairman Kent Conrad, referring to comments Mr. Obama made Sunday on CBS’ “60 Minutes” urging a more deliberate approach.

New York Attorney General Andrew M. Cuomo said Monday evening that some employees at American International Group Inc., the company whose bonuses have drawn the ire of Congress and the public, will voluntarily give back the money. AIG is under fire for paying $165 million in bonuses while being kept afloat with a $170 billion infusion from the government.

Lawmakers and voters have been clamoring to retake the bonuses, which in some cases went to workers in the same trading offices that brokered the risky investment packages blamed for Wall Street’s woes.

The House, fueled by the outrage, last week quickly passed a bill that would slap a 90 percent tax on such compensation deals.

Mr. Conrad, North Dakota Democrat, said the bonuses paid by AIG were inappropriate and the money should be returned. But he said a targeted tax bill isn’t the solution.

“I think the tax plan has lots of issues about it, especially constitutional questions,” he said on MSNBC. “Do you really want to use the tax code to go after just a handful of people?”

Mr. Obama, who in his Sunday TV interview questioned the legality and the constitutionality of a House-passed bill to tax the bonuses, said he expected the Senate would create a different version that he could sign.

Senate Majority Leader Harry Reid, Nevada Democrat, blamed Republicans for stalling action. “With Republican cooperation, we can quickly and responsibly return these funds to the American people,” he said Monday on the chamber floor.

But Reid spokesman Jim Manley acknowledged that the leadership harbored doubts about the breadth of support in either party.

“Not only do we have the White House raising concerns but any number of Republicans and Democrats as well,” he said.

Senate Minority Leader Mitch McConnell said now is the time to move slowly. The administration missed an opportunity to head off AIG bonuses months ago when handing the company another $30 billion bailout payment, he said.

“One of the things you can say about the Senate is frequently it does not act in haste and a number of my members would like to take a look at this proposal and see whether it is, in fact, the best way to go. It may not be,” the Kentucky Republican said.

The Senate bill would impose a 35 percent tax on the company and the recipient of the bonus. It also casts a wider net, hitting bonus recipients regardless of their income level and including every bailed-out business that gave out bonuses since Jan. 1.

The House bill taxed only executives making more than $250,000 a year and firms that collected more than $5 billion in federal aid, which covers only about a dozen companies.

The Senate bill, written by Finance Committee Chairman Max Baucus, Montana Democrat, was introduced last week with bipartisan support. Sen. Charles E. Grassley of Iowa, the ranking Republican on the committee, and Sen. Olympia J. Snowe, Maine Republican, were lead co-sponsors.

Mr. Grassley said he thinks the bill could garner enough support to overcome a 60-vote threshold to defeat a filibuster.

“If it’s up [for a vote], I think it will get passed,” he told The Washington Times. “The American people are sick and tired, they’re outraged at what’s going on.”

Several top Democrats, including Mr. Baucus, have suggested that the bonuses would recede as an issue if AIG executives would simply return the money.

Mr. Conrad suggested two ways to prompt a payback: have AIG threaten to fire executives who does not return their bonus or threaten to make their names public if they don’t return the money.

“You know, sometimes public shame in the public corridor can be very effective,” Mr. Conrad said.

Mr. Cuomo, the New York attorney general, told reporters that nine of the top 10 AIG bonus recipients, and 15 of the top 20, have agreed to give back their bonus money, totaling more than $30 million. The Associated Press reported that Mr. Cuomo said some executives had refused, while others were considering returning the money.

Mr. Cuomo said he hopes to recoup $80 million. He had subpoenaed the names of executives who received bonuses.

• David R. Sands contributed to this report.

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