Congress Threatens to Tax “Staggering” AIG Bonuses at 60-100%

Yesterday, we posted about the controversial decision of AIG to award bonuses to executives in the Financial Products Subsidiary that contributed greatly to the company’s collapse last year. Just a few minutes ago, in our weekly Compliance Blog Roundup, we linked you to some compelling posts from The Business Ethics Blog discussing ethical and legal questions surrounding the AIG bonuses.

Then, immediately after posting the Roundup, we stumbled on the two newest pieces of information in the constantly evolving AIG bonus story. And both pieces of information have some shock value.

Yesterday, in response to AIG’s statement that it would honor its contractual bonus obligations, New York Attorney General Andrew Cuomo demanded information such as names and job descriptions of the executives slated to receive the $165 million in bonuses.

What Cuomo found compelled him to term the bonuses as “staggering in size.”

According to a report by Maddy Sauer earlier today at ABCNews.com, seven executives at the Financial Products Subsidiary of AIG received bonuses of at least $4 million each. The top bonus recipient got $6.4 million.

In a letter written by Cuomo to Barney Frank, Cuomo says, “Already my Office has determined that some of these bonuses where staggering in size…Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG.”

In related news, according to Helen Kennedy of the New York Daily News, New York Senator Chuck Schumer is among many members of Congress who want to tax the bonuses at rates between 60% and 100%.

From the NYDailyNews.com article about Congress threatening to tax the AIG bonuses:

“They should voluntarily return them. If they don’t, we plan to tax virtually all of it,” New York Sen. Chuck Schumer declared in a speech on the Senate floor.

“To those of you getting these bonuses: be forewarned, you will not be getting to keep them.”

Schumer called it “Alice in Wonderland business practices” to give bonuses to executives at a firm that lost nearly $100 billion last year and had to be rescued with $170 billion in taxpayer money.

“It boggles the mind,” he said.

According to the article, the IRS currently takes 35% of bonuses over $1 million.

The heated rhetoric on the Senate floor today even included Iowa Senator Chuck Grassley saying that AIG execs should, “follow the Japanese example and come before the American people and take that deep bow and say, I’m sorry, and then either do one of two things: resign or go commit suicide.”

Grassley, of course, later apologized for his comments.

The AIG bonuses have obviously created a tremendous stir over the last few days. While many people believe it is just flat wrong that AIG, after accepting federal bailout money, could pay hefty bonuses to executives at the division that created so much of the company’s mess, some are arguing that contractual bonus obligations should be honored. And obviously adherents to conservative economic principles will shudder at the mere thought of increased taxation of the bonuses and further government intervention.

As we did yesterday, we open it up for your opinions in the comments section.

• Should AIG honor its bonus commitments?
• Should the government step in to tax the bonuses if the AIG executives who received them do not return the money?
• Is there another angle to this story that is not getting enough discussion?

Tags: AIG, bonuses, federal bailout, Governance