House Approves New Tax to Stem Wall St. Bonuses
The House of Representatives overwhelmingly approved on Thursday a near-total tax on bonuses paid this year to employees of the American International Group and other firms that have accepted large amounts of federal bailout funds, rattling Wall Street as lawmakers rushed to respond to populist anger.
Despite questions about the legality of the retroactive 90 percent levy, Democrats and some Republicans said the tax on bonuses for executives earning more than $250,000 was the quickest way to show angry Americans that Congress intended to recoup the extra dollars. Even backers of the measure noted it was an extraordinary step.
The House vote sent some employees into a panic about the prospect of, in effect, having to give up money they might already have spent. And it had regulators fearing it could undermine the Treasury’s efforts to stabilize the financial system if banks tried to flee the bailout program or if other firms refused to participate in coming rescue operations in order to protect their bonuses, some executives said.
Vikram S. Pandit, the chief executive of Citigroup, lobbied against the legislation in a meeting Thursday with the Senate majority leader, Sen. Harry Reid, according to an industry official.
But the rush to curb the bonuses by lawmakers, many of whom have previously been torn about limiting executive compensation, reflected congressional anxiety about heightened public dismay over the bailout. The Senate is expected to consider a similar tax on bonuses but has some differences with the House, which could slow final action.
In a statement, President Barack Obama suggested he was supportive of the legislation, urging Congress to deliver a “final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.”
In an appearance later on “The Tonight Show” on NBC, Obama was measured in his reaction, saying he understood that Congress was “responding, I think, to everybody’s anger” but that the best way to handle the situation was “to make sure you’ve closed the door before the horse gets out of the barn.”
The legislation would apply to bonuses paid to executives at companies holding at least $5 billion in bailout money and would essentially wipe out the phenomenal paydays that have been a tradition on Wall Street, at least until the firms reduce the amount they owe taxpayers to less than $5 billion.
According to a tally by The New York Times of bailout recipients, employees at 11 institutions — including Goldman Sachs, Bank of America, Citigroup, Wells Fargo and JPMorgan Chase — would face restrictions immediately.
The current version of the Senate bill would apply to an even wider array of companies. It would tax bonuses at companies that received as little as $100 million in federal bailout assistance, though at a lower rate.
In response, financial institutions that have received federal bailout money mounted a broad assault Thursday on the House legislation, which was opposed by leading Republicans.