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House passes punitive tax on bonuses from bailout companies

By Bernard Hibbitts (editor) and University of Pittsburgh School of Law students.

[JURIST] The US House of Representatives passed a bill Thursday that would tax bonuses given to employees of companies that received money from government stimulus programs at 90 percent. The bill, which was passed by a vote of 328-93, was drafted and voted on in reaction to large bonus payments made in the past week to employees of embattled insurance company American International Group (AIG). A number of Republican representatives supported the bill, which also received many Democratic votes. The bill amends the Internal Revenue Code to provide for a 90 percent tax on bonuses from a company that received more than $5 billion under the Troubled Asset Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008, Fannie Mae and Freddie Mac, or any entity related to those companies. The tax will not apply to employees who irrevocably waive their entitlement to bonuses defined in the legislation. The bill will now move to a vote in the US Senate. While the bill was an immediate response to recent employee bonuses at AIG, if signed into law, it would affect employees at many of the world's leading financial institutions, where compensation is often heavily reliant on bonuses. The House passage of H.R. 1586 comes more than a month after President Barack Obama announced a $500,000 cap on executive compensation for companies receiving "exceptional assistance" from the federal government. That statement came in conjunction with an announcement from Treasury Secretary Timothy Geithner, highlighting increased restrictions on financial institutions receiving government assistance. The strong reaction to exorbitant executive compensation and bonuses comes as the US government and the Obama administration attempt to grapple with the ongoing global financial crisis. Attempts to gain control over the roiling credit markets and possible widespread bank insolvencies have included the passage in September of a $700 billion financial rescue bill, creating the TARP, which provided economic assistance to at-risk financial institutions. In early October, the US Securities and Exchange Commission began an agency review of financial accounting procedures, including "mark-to-market" rules.

Full post as published by JURIST - The Paper Chase on March 20, 2009 (boomark / email).