Archive for the ‘Executives’ Category

House of Representatives Votes to Tax AIG Executives’ Bonuses at 90%

March 19, 2009

The House just passed H.R. 1586, officially titled “To impose an additional tax on bonuses received from certain TARP recipients” (sponsored by Charlie Rangel [D-NY]), which taxes the bonuses of AIG executives.  The bill technically places a tax on any bonuses given by companies who received TARP (Troubled Asset Relief Program) money.

The following is the text of the legislation:

HR 1586 IH

 

111th CONGRESS 

1st Session

H. R. 1586

To impose an additional tax on bonuses received from certain TARP recipients.

IN THE HOUSE OF REPRESENTATIVES

March 18, 2009

Mr. RANGEL (for himself, Mr. ISRAEL, Mr. PETERS, Mrs. MALONEY, Mr. STARK, Mr. LEVIN, Mr. LEWIS of Georgia, Mr. TANNER, Mr. POMEROY, Mr. THOMPSON of California, Mr. LARSON of Connecticut, Mr. BLUMENAUER, Mr. PASCRELL, Ms. BERKLEY, Mr. VAN HOLLEN, Mr. MEEK of Florida, Mr. DAVIS of Alabama, Mr. DAVIS of Illinois, Mr. ETHERIDGE, Ms. LINDA T. SANCHEZ of California, Mr. HIGGINS, Mr. YARMUTH, Mr. DINGELL, Mr. CONNOLLY of Virginia, Ms. FUDGE, Mr. LUJAN, Mr. MAFFEI, Mr. PERRIELLO, Mr. CARNEY, Ms. CASTOR of Florida, Ms. CLARKE, Mr. COHEN, Mr. ELLISON, Mr. HALL of New York, Mr. HARE, Mr. KLEIN of Florida, Mr. LOEBSACK, Ms. SCHAKOWSKY, Mr. SIRES, Mr. WELCH, Mr. WILSON of Ohio, Mr. WU, and Mr. HILL) introduced the following bill; which was referred to the Committee on Ways and Means

 


 

A BILL 

To impose an additional tax on bonuses received from certain TARP recipients.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. BONUSES RECEIVED FROM CERTAIN TARP RECIPIENTS.

    (a) In General- In the case of an employee or former employee of a covered TARP recipient, the tax imposed by chapter 1 of the Internal Revenue Code of 1986 for any taxable year shall not be less than the sum of–

 (1) the tax that would be determined under such chapter if the taxable income of the taxpayer for such taxable year were reduced (but not below zero) by the TARP bonus received by the taxpayer during such taxable year, plus

(2) 90 percent of the TARP bonus received by the taxpayer during such taxable year.

    (b) TARP Bonus- For purposes of this section–

(1) IN GENERAL- The term `TARP bonus’ means, with respect to any individual for any taxable year, the lesser of–

(A) the aggregate disqualified bonus payments received from covered TARP recipients during such taxable year, or

(B) the excess of–

(i) the adjusted gross income of the taxpayer for such taxable year, over

(ii) $250,000 ($125,000 in the case of a married individual filing a separate return).

 (2) DISQUALIFIED BONUS PAYMENT-

(A) IN GENERAL- The term `disqualified bonus payment’ means any retention payment, incentive payment, or other bonus which is in addition to any amount payable to such individual for service performed by such individual at a regular hourly, daily, weekly, monthly, or similar periodic rate.

(B) EXCEPTIONS- Such term shall not include commissions, welfare or fringe benefits, or expense reimbursements.

(C) WAIVER OR RETURN OF PAYMENTS- Such term shall not include any amount if the employee irrevocably waives the employee’s entitlement to such payment, or the employee returns such payment to the employer, before the close of the taxable year in which such payment is due. The preceding sentence shall not apply if the employee receives any benefit from the employer in connection with the waiver or return of such payment.

(3) REIMBURSEMENT OF TAX TREATED AS TARP BONUS- Any reimbursement by a covered TARP recipient of the tax imposed under subsection (a) shall be treated as a disqualified bonus payment to the taxpayer liable for such tax.

    (c) Covered TARP Recipient- For purposes of this section–

(1) IN GENERAL- The term `covered TARP recipient’ means–

(A) any person who receives after December 31, 2007, capital infusions under the Emergency Economic Stabilization Act of 2008 which, in the aggregate, exceed $5,000,000,000,

(B) the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation,

(C) any person who is a member of the same affiliated group (as defined in section 1504 of the Internal Revenue Code of 1986, determined without regard to paragraphs (2) and (3) of subsection (b)) as a person described in subparagraph (A) or (B), and

(D) any partnership if more than 50 percent of the capital or profits interests of such partnership are owned directly or indirectly by one or more persons described in subparagraph (A), (B), or (C).

 (2) EXCEPTION FOR TARP RECIPIENTS WHO REPAY ASSISTANCE- A person shall be treated as described in paragraph (1)(A) for any period only if–

(A) the excess of the aggregate amount of capital infusions described in paragraph (1)(A) with respect to such person over the amounts repaid by such person to the Federal Government with respect to such capital infusions, exceeds

(B) $5,000,000,000.

    (d) Other Definitions- Terms used in this section which are also used in the Internal Revenue Code of 1986 shall have the same meaning when used in this section as when used in such Code.
    (e) Coordination With Internal Revenue Code of 1986- Any increase in the tax imposed under chapter 1 of the Internal Revenue Code of 1986 by reason of subsection (a) shall not be treated as a tax imposed by such chapter for purposes of determining the amount of any credit under such chapter or for purposes of section 55 of such Code.
    (f) Regulations- The Secretary of the Treasury, or the Secretary’s delegate, shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section.
    (g) Effective Date- This section shall apply to disqualified bonus payments received after December 31, 2008, in taxable years ending after such date.

The bill passed 328 (243 Democrats, 85 Republicans)-93 (6 Democrats, 87 Republicans).

Personally, this bill is very troubling to me.  It’s debatable as to whether or not it’s Constitutional.  Some have said that it’s a bill of attainder (a bill that focuses on punishing 1 group of people).  Technically, it never names AIG as the focus of the bill, but that’s definitely the intent.

This bill is more legally binding than Representative Gary Peters’ bill (H.R. 1527) that would impose a 60% tax on bonuses paid to executives if “the ownership interest of the Federal Government” is at least 79%.  Basically that says that if the government owns at least 79% of a company’s stock, it can tax bonuses on that company’s executives at a rate of 60%.  The problem with that bill, which I talked about yesterday, is that the government technically doesn’t own AIG. 

Even if it is Constitutional, I find this a huge invasion of the business sector.  Two wrongs do not make a right.  It’s a complete twist of the American tax code, and it sets a VERY dangerous precedent.

I don’t think AIG executives should have received the bonuses, but that stipulation should have been placed in the original TARP legislation.

Now, that stipulation WAS in the original bill; however, when it went to the conference committee, the Democrats took out that provision.  The exact details of how that happened are still unknown, but Chris Dodd had said that he introduced an amendment at the request of the Obama administration.  When this actually gets sorted out, I’ll let you know what actually happened.

Regardless of how they were allowed to get the bonuses, they were, and taking the bonuses away like this is questionably constitutional, but in the least, a blatant perversion of the tax code.

Done Ranting,

Ranting Republican

Bonuses for AIG Executives Are Disgusting, but Legally Necessary

March 18, 2009

I’m sure that by now, most of you have heard about AIG giving out $165 million in bonuses, and that has outraged many Americans, including many politicians because people don’t think that executives should be getting money for driving AIG into the ground and then receiving government bailout money.

Personally, I agree that they don’t deserve bonuses, especially after receiving government money.

The problem is, there’s really no way that I see the government LEGALLY stopping these bonuses.  The government lent out money to AIG originally, without putting any requirements on the money not going toward bonuses, so the government has no right to step in and stop it now.

The bonuses are in the executives’ contracts, and thus should be paid out.

And the idea to tax the bonuses 100% is just plain wrong – that’s government intrusion and it crosses the line.

And Representative Barney Frank’s (D-MA) solution isn’t exactly legal either.  He told CNN earlier today:

We own this company in effect, and we’re not asking that these bonuses be rescinded because we have lent money to the company.  I believe we are saying as the owners of the company, we do not think we should be paying bonuses or should have paid bonuses to people who made mistakes, who were incompetent.

No, I don’t think the American people want a situation where Congress, whenever it feels a contract shouldn’t have been signed, passes a law to abrogate that past contract.  That’s why I am saying we should assert our ownership rights.

I want to invalidate these contracts and say, look, we are the owners of this company.  Yes, contracts were signed with you that I wish hadn’t been signed.  But given how badly you performed, I want to argue that they did not perform under the contract.

The difference would be having a precedent that I don’t think the American people want, even if for this situation, we’d all like to see it different, where whenever Congress thinks a contract should be abrogated, it should be abrogated.  So, I’m talking about a legislative abrogation of a contract.  I’m talking about a lawsuit as an owner of the company [that wants to reward a] bonus, we ought to fine you for messing it up.

Well, I personally have a problem with Representative Frank’s plan.  Sure, the government pumped billions of dollars into AIG, but they did it as a loan.  We’re not talking about being the majority shareholder here – we’re not talking about buying stocks, we’re talking about a loan.  Giving a company a loan gives Congress absolutely no ownership rights, and the fact that Barney Frank thinks that the loan gave the government “ownership,” even in the slightest, is honestly quite scary.

Think of it on a more personal level than if it were a company.  Imagine that the government gave you a student loan.  If they gave you a loan intended for school, but never put in writing that it had to be spent on school, and you spent the money on candy bars, you have that legal right.  What Barney Frank wants to do is say, “The federal government is part owner of your life, and you are not allowed to buy candy bars.”  Well, I would be fine with that if it had been in the original agreement, but it wasn’t.  Now, what was in the original agreement was that the the government got “equity participant warrants” for 79.9% of AIG’s equity.  For those of you who don’t know what equity warrants are, they’re a contract that says that the government has the option and right to own 79.9% of the AIG shares; however, the government is not exercising that option now.  Until we exercise that option, the government has NO RIGHT to step in here.

If the government takes back any of this money and gets away with it, it sets a VERY dangerous precedent.

Now, Edward Liddy, the CEO of AIG, is encouraging employees to give back half of the bonus money.  And if they do, that’s fine, because THEY are giving it up.  But if the government takes the money simply because the executives dont’ deserve it, that would be a major government intrusion.

Done Ranting,

Ranting Republican


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