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Financial Planning > Tax Planning

Cuomo Describes Bonuses; Lawmakers React

By Arthur D. Postal

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Washington

New York Attorney General Andrew Cuomo says American International Group Inc. recently paid bonuses of $1 million or more to 73 employees, including 11 who longer work for the company.

In related news, members of Congress today began to respond to Main Street anger about payment of bonuses to AIG employees by disclosing plans to introduce legislation that would claw back the bonuses through punitive taxes.

Cuomo disclosed the information about the bonus recipients in a letter to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

Cuomo had subpoenaed the information from AIG Monday in an effort to determine whether the payments constitute fraud under state law.

Cuomo says contracts written in March 2008 guaranteed employees 100% of their 2007 pay for 2008, regardless of their performance.

Cuomo says the top recipient received more than $6.4 million; 22 individuals received bonuses of $2 million or more, and combined they received more than $72 million; 73 individuals received bonuses of $1 million or more; and 11 of the individuals who received “retention” bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million

In the House, Rep. Steve Israel, D-N.Y., introduced a bill that would impose a 100% tax on the bonuses.

“If we can’t kill the bonuses, we’ll tax the bonuses,” Israel said in a statement.

Rep. Carolyn Maloney, D-N.Y., head of the Joint Economic Committee, said she is introducing another bill to apply a special tax to the bonuses.

In the Senate, Sen. Max Baucus. D-Mont., chairman of the Senate Finance Committee said at a hearing that he is drafting a bill to claw back “some” of the bonus money. The tax could be as high as 91%, sources said.

“We are looking at tax options that will reclaim the outrageous bonuses paid by AIG,” Baucus said, adding that the measure will be unveiled shortly. “What’s the highest excise tax we can impose that will stand up in court?”

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, earlier had suggested some form of taxation as a means of recouping the bonuses.

He said the tax would apply only to those at AIG who had received bonuses. The provision would help the government get back the money in the form of tax revenue, he said.

Today, in a hearing on insurance regulation, Dodd said the American people “are outraged–and I am as well.”

“The chairman of the Federal Reserve has said that the government’s efforts to prevent AIG from failing outright are akin to a neighbor smoking in bed and setting the house on fire,” Dodd said.

“With these bonuses, what we are seeing is the folks responsible picking the pockets of the firefighters and stealing the hubcaps off the fire truck; it’s outrageous,” he added.

Dodd also said he wants to hear from the Fed what steps are being taken to deal with the situation.

“And we also want answers regarding where the Fed had been on conditions for these types of bonuses since this rescue effort first began,” Dodd said.

Sen. Sen. Charles Grassley, R-Iowa, told Cedar Rapids, Iowa, radio station WMT, that, “I would suggest the first thing that would make me feel a little better toward them [AIG executives] is if they follow the Japanese example and come before the American people and take that deep bow and say, ‘I am sorry,’ and then either do one of two things: resign or go commit suicide. And in the case of the Japanese, they usually commit suicide.”

Later today, Grassley apologized to reporters for his comments about suicide.

Sen. Charles Schumer, D-N.Y., demanded that the bonuses be returned–or taxed.

Recipients “should voluntarily return them,” Schumer said in a statement on the Senate floor. “If they don’t, we plan to tax virtually all of it.”

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.

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