House passes punitive tax on bonuses from bailout companies

House passes punitive tax on bonuses from bailout companies

[JURIST] The US House of Representatives [official website] passed a bill [H.R. 1586 text, PDF] 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 [roll call vote], 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) [corporate website]. 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 [text, PDF], Fannie Mae and Freddie Mac [corporate websites], 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 [official website]. While the bill was an immediate response to recent employee bonuses at AIG, if signed into law, it would affect employees [Washington Post report] 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 [official profile] announced a $500,000 cap on executive compensation [JURIST report] for companies receiving "exceptional assistance" from the federal government. That statement came in conjunction with an announcement from Treasury Secretary Timothy Geithner [official profile], highlighting increased restrictions on financial institutions [Treasury press release] 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 [JURIST news archive]. 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 [JURIST report], 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 [JURIST report], including "mark-to-market" [SEC backgrounder] rules.