House Passes a Big Tax on AIG Bonuses Amid Bipartisan Outrage

House Democrats and Republicans today lobbed some of their most caustic criticisms at one another since Barack Obama became president—but they did manage to rally around their shared outrage over American International Group's millions in bonus payments long enough to pass a bill with bipartisan support that will "claw back" those bonuses through taxes.

The bill, which passed by a vote of 328 to 93, with 85 Republicans voting in favor, levies a 90 percent tax on bonuses worth over $250,000 at companies that have received $5 billion or more in bailout money. That includes not only AIG but Sally Mae and Freddie Mac. "We figured that the local and state governments would take care of the other 10 percent," Rep. Charles Rangel of New York, the proposal's chief author as chairman of the House Ways and Means Committee, told the Associated Press.

The legislation comes on the heels of news that the beleaguered insurance giant AIG paid out $165 million in retention payments to 418 top executives last week. Worsening the rancor was the recent revelation that the loophole allowing AIG to do so was part of the $787 billion stimulus bill. Sen. Chris Dodd, a Connecticut Democrat, acknowledged yesterday that he inserted the provision into the recovery act—at, he reportedly said, the administration's request—that would ensure that contracts for executive bonuses at companies being bailed out would be honored.

The bonus payments are just a fraction of the nearly $80 billion that AIG has borrowed from the government, as well, of course, as of the $180 billion in bailout money authorized for the company thus far. An even more worrying issue, critics have said, is how AIG was able to use more than $90 billion in bailout funds to pay debts to U.S. and European banks, including $13 billion to Wall Street giant Goldman Sachs.

Even so, the idea that public money was going to reward the performances of executives at a failing company has infuriated taxpayers, who now own an 80 percent stock in AIG. And Congress responded. A hearing yesterday on AIG's conduct was attended by the company's CEO, Edward Liddy, who found himself fielding criticism from both sides of the aisle. In the meantime, Democrats hurried to piece together legislation that would use the tax code to get bonus money back to the government.

Despite the bill's passage with only two more Republicans voting against the bill than voted for it, debates this morning showed that while both Republicans and Democrats were outraged, they were hardly unified. The GOP threw jabs at the Obama administration for failing to stop the bonuses before they were paid out. And they attacked Democrats for allowing the provision into the stimulus act to begin with, calling the current bill a "legislative coverup."

"Passing a bill that we don't understand to correct a bill that we didn't read" is not a way to fix the problem, said Rep. Jeff Flake, a Republican from Arizona.

"Nobody back home is asking about the conference report," Rangel barked in response to criticism. "They are asking, 'Are these people going to take away bonuses that taxpayers have paid for?' "

Republicans also were angry that the legislation required a two-thirds vote to pass, effectively preventing GOP amendments. "Although I support the bill we will consider today, I find it quite unfortunate the way in which the majority leaders have decided to handle this," Florida Republican Rep. Lincoln Diaz-Balart said this morning. "This is an issue that members on both sides of the aisle feel outraged about, so why not allow the minority to participate?"

Democrats fought back by arguing that the initial passage of the Troubled Asset Relief Program had fewer restrictions on executive payments than Democrats have since put in but was lobbied for by the Bush administration and voted for by nearly half of House Republicans.