US Lawmakers Impose Bonus Taxes On Bankers Receiving TARP Cash

Tom Burroughes

25 March 2009

Editor's note: Story originally published on 20 March. Refiled.

US lawmakers in the House of Representatives have passed legislation to significantly curb Wall Street bonuses this year, as lawmakers from both parties echoed popular outrage over big payouts to employees of American Insurance Corporation after the ailing insurance giant took billions of dollars in taxpayer money, media reports said.

The House measure was approved on a 328-93 vote and would impose a 90 per cent surtax on bonuses granted to employees who earn more than $250,000 at companies that have received at least $5 billion from the government's financial rescue program. The bonus tax, if approved by the Senate and signed into law, would be retroactive to 31 December, 2008.

Eight banks - JP Morgan, Citi, Goldman Sachs, PNC Financial Services, Wells Fargo, Bank of America, Morgan Stanley and US Bancorp, have received public funds under the US Troubled Asset Relief Programme, or TARP.

Wall Street firms last year paid more than $18.4 billion in bonuses in New York City, according to the New York state comptroller, and pay experts estimated that thousands of employees would likely be affected.

For individuals, congressional aides stressed the new levy would be in addition to the existing tax system, both the regular income tax and the alternative minimum tax. The so-called AMT is designed to ensure wealthy individuals don't avoid federal tax liability. The House bill would also apply to the troubled mortgage giants Fannie Mae and Freddie Mac, which have received federal funds from a different programme. Congressional aides said auto makers could be snared in the future if they receive government capital infusions.

Critics of the legislation say that retroactively taxing bonuses approved under prior contracts sets a dangerous precedent, giving politicians an opening to hit unpopular groups.