By David M.Herszenhorn
WASHINGTON — Senate Democratic leaders demanded on Tuesday that the insurance giant American International Group reverse the $165 million in bonuses that the firm had paid to executives after receiving more than $170 billion in bailout money. Alternatively, lawmakers said they would seek to reclaim the money by adopting new tax legislation.
The demand by Senate leaders, made in a letter to the chief executive of A.I.G., Edward Liddy, came as lawmakers in both parties raged against the insurance company. There was angry finger-pointing across Washington on Tuesday, as Congress, the Obama administration and the Federal Reserve all sought to avoid blame.
In Congress, Representative Barney Frank, Democrat of Massachusetts and chairman of the Financial Services Committee, said that it was time for the government to exercise its rights as the owner of nearly 80 percent of A.I.G., and he said he believed that the bonuses could be reversed on that authority alone, or by court action if necessary.
“We’re the owner of the company, in fact,” Mr. Frank declared at a news conference. “I think the time has come to exercise our ownership rights — we own most of the company — and then say as owner, ‘No, I’m not paying you the bonus. You didn’t perform. You didn’t live up to this contract.’ ”
Mr. Frank added: “In other words, I think we are in a stronger case to try and get those bonuses back if we bring them as the owner of the company, rather than as the regulator interfering with a contract between two other parties.”
A.I.G. has insisted that it was obligated to pay the bonuses under employment contracts with executives in its financial products division.
Republicans also joined in lashing out at A.I.G. and sought to cast blame on Democrats, both in Congress and in the Obama administration.
“What they really fouled up in my view is they gave A.I.G. an extra $30 billion just two weeks ago,” the Republican leader, Senator Mitch McConnell of Kentucky, said at a news conference in response to a question about whether Democrats were at fault.
“The government has been heavily involved in A.I.G. for some months now,” Mr. McConnell said. “It’s shocking that they would — the administration would come to us now and act surprised about these contracts. Why didn’t they ask the question two weeks ago, before they gave them $30 billion?”
He added: “As virtually everyone has said in one way or another, this is an outrage.”
Outrage was indeed the predominant sentiment throughout Washington.
The Senate majority leader, Harry Reid of Nevada, said that Congress was moving to reverse the bonus payments.
“When a child breaks his curfew, he should get grounded,” Mr. Reid said. “When someone commits a crime, he should be punished. And when an employee brings his company and our economy to the brink, he’s not rewarded with multimillion-dollar bonuses paid by the taxpayers.”
In the letter to Mr. Liddy, Senate Democratic leaders, wrote: “We write today to express our outrage” and they threatened legislative action “to recoup these bonus payments, perhaps by imposing a steep tax — as high as 91 percent — that will have the effect of recovering nearly all of the bonuses.”
Aides said that the 91 percent figure represented the highest marginal tax rate on record. Leaders of the Senate Finance Committee said they would seek to oppose a 35 percent tax on individual recipients of the bonuses, a 35 percent tax on the company and that state and local taxes would recoup the balance.
But because the government is the majority owner of A.I.G. any taxes paid by the company are effectively being footed by taxpayers. Critics also said that as many as half of the bonus recipients appeared to be citizens of foreign countries, meaning they are not subject to American income taxes.
Senate Democratic leaders have also asked the Treasury Department to complete its effort to “establish guidelines regarding executive pay and bonuses and luxuries,” Mr. Reid said.
But Mr. Reid mostly ducked a question about whether Democrats had missed an opportunity to prevent the bonuses because of a clause in the stimulus bill, that imposed limits on executive compensation and bonuses but made an exception for pre-existing employment contracts.
Senator Christopher J. Dodd, Democrat of Connecticut, who initially proposed adding executive compensation and bonus limits to the stimulus bill, did not include the exception.
The clause was apparently added in final negotiations between Congressional leaders and the Obama administration.
That clause stated that the new rules barring bonuses “shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before Feb. 11, 2009.”
The bill did retain a provision sought by Mr. Dodd that required the Treasury to review all prior bonus payments and to negotiate with bailout recipients for reimbursement of money used for any bonuses deemed inappropriate.
The House Speaker, Nancy Pelosi, of California, said that she had asked the tax-writing Ways and Means Committee, the Financial Services Committee, and the Judiciary Committee to draft legislation that would allow the government to recoup “misspent public dollars” from companies that have received billions in bailout funds.
Among the proposals under consideration, Ms. Pelosi said, were authorization for the Attorney General to recover excessive compensation payments made by the companies, prohibiting abuse of so-called “retention bonuses” and new tax legislation.
Mr. Liddy, the A.I.G. chief, is scheduled to testify on Wednesday before the House Financial Services Committee, where he is likely to get an unfriendly reception. Not since Detroit’s auto executives flew to Washington in December on private jets to request billions on taxpayer aid have lawmakers voiced such seething fury at corporate America.
Several lawmakers complained that the clause seemed to have allowed the A.I.G. bonuses, but that it did not appear that the clause had been intended to specifically benefit A.I.G. or any other particular company.
Representative Eric Cantor, of Virginia, the No. 2 House Republican, said that Democrats should be taken to task for not preventing the bonuses, and that the Obama administration should do a better job of accounting how bailout money was spent. “The administration must account for the spending of taxpayer dollars and answer the question as to why taxpayers were forced to reward some of the executives who created this mess,” Mr. Cantor said in a statement.
He added: “A last-minute provision in the stimulus bill inserted by Democrats protected bonuses like those received by A.I.G. executives. Taxpayers deserve better than this from their government.”
Senator Ron Wyden, Democrat of Oregon, and Senator Olympia J. Snowe, Republican of Maine, complained on Tuesday that an amendment they had proposed — imposing tough penalties on firms that paid bonuses after taking taxpayer bailout money — had been stripped from the stimulus bill at the last minute.
The Wyden-Snowe amendment was intended to work in conjunction with Mr. Dodd’s proposal and would have required firms that paid bonuses to pay back that amount of money to the government within 120 days or face a 35 percent excise tax.
Mr. Wyden’s staff acknowledged that the provision would not necessarily have prevented the A.I.G. bonuses but would have created a disincentive for firms to pay bonuses in general.
Representative Thaddeus McCotter, Republican of Michigan, said that it would be a mistake to tax the bonuses. But he called on the Obama administration to break up A.I.G.
Mr. Liddy, the A.I.G. chief, is scheduled to testify on Wednesday before the House Financial Services Committee, where he is likely to get an unfriendly reception. Not since Detroit’s auto executives flew to Washington in December on private jets to request billions on taxpayer aid have lawmakers voiced such seething fury at corporate America.
WASHINGTON — Senate Democratic leaders demanded on Tuesday that the insurance giant American International Group reverse the $165 million in bonuses that the firm had paid to executives after receiving more than $170 billion in bailout money. Alternatively, lawmakers said they would seek to reclaim the money by adopting new tax legislation.
The demand by Senate leaders, made in a letter to the chief executive of A.I.G., Edward Liddy, came as lawmakers in both parties raged against the insurance company. There was angry finger-pointing across Washington on Tuesday, as Congress, the Obama administration and the Federal Reserve all sought to avoid blame.
In Congress, Representative Barney Frank, Democrat of Massachusetts and chairman of the Financial Services Committee, said that it was time for the government to exercise its rights as the owner of nearly 80 percent of A.I.G., and he said he believed that the bonuses could be reversed on that authority alone, or by court action if necessary.
“We’re the owner of the company, in fact,” Mr. Frank declared at a news conference. “I think the time has come to exercise our ownership rights — we own most of the company — and then say as owner, ‘No, I’m not paying you the bonus. You didn’t perform. You didn’t live up to this contract.’ ”
Mr. Frank added: “In other words, I think we are in a stronger case to try and get those bonuses back if we bring them as the owner of the company, rather than as the regulator interfering with a contract between two other parties.”
A.I.G. has insisted that it was obligated to pay the bonuses under employment contracts with executives in its financial products division.
Republicans also joined in lashing out at A.I.G. and sought to cast blame on Democrats, both in Congress and in the Obama administration.
“What they really fouled up in my view is they gave A.I.G. an extra $30 billion just two weeks ago,” the Republican leader, Senator Mitch McConnell of Kentucky, said at a news conference in response to a question about whether Democrats were at fault.
“The government has been heavily involved in A.I.G. for some months now,” Mr. McConnell said. “It’s shocking that they would — the administration would come to us now and act surprised about these contracts. Why didn’t they ask the question two weeks ago, before they gave them $30 billion?”
He added: “As virtually everyone has said in one way or another, this is an outrage.”
Outrage was indeed the predominant sentiment throughout Washington.
The Senate majority leader, Harry Reid of Nevada, said that Congress was moving to reverse the bonus payments.
“When a child breaks his curfew, he should get grounded,” Mr. Reid said. “When someone commits a crime, he should be punished. And when an employee brings his company and our economy to the brink, he’s not rewarded with multimillion-dollar bonuses paid by the taxpayers.”
In the letter to Mr. Liddy, Senate Democratic leaders, wrote: “We write today to express our outrage” and they threatened legislative action “to recoup these bonus payments, perhaps by imposing a steep tax — as high as 91 percent — that will have the effect of recovering nearly all of the bonuses.”
Aides said that the 91 percent figure represented the highest marginal tax rate on record. Leaders of the Senate Finance Committee said they would seek to oppose a 35 percent tax on individual recipients of the bonuses, a 35 percent tax on the company and that state and local taxes would recoup the balance.
But because the government is the majority owner of A.I.G. any taxes paid by the company are effectively being footed by taxpayers. Critics also said that as many as half of the bonus recipients appeared to be citizens of foreign countries, meaning they are not subject to American income taxes.
Senate Democratic leaders have also asked the Treasury Department to complete its effort to “establish guidelines regarding executive pay and bonuses and luxuries,” Mr. Reid said.
But Mr. Reid mostly ducked a question about whether Democrats had missed an opportunity to prevent the bonuses because of a clause in the stimulus bill, that imposed limits on executive compensation and bonuses but made an exception for pre-existing employment contracts.
Senator Christopher J. Dodd, Democrat of Connecticut, who initially proposed adding executive compensation and bonus limits to the stimulus bill, did not include the exception.
The clause was apparently added in final negotiations between Congressional leaders and the Obama administration.
That clause stated that the new rules barring bonuses “shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before Feb. 11, 2009.”
The bill did retain a provision sought by Mr. Dodd that required the Treasury to review all prior bonus payments and to negotiate with bailout recipients for reimbursement of money used for any bonuses deemed inappropriate.
The House Speaker, Nancy Pelosi, of California, said that she had asked the tax-writing Ways and Means Committee, the Financial Services Committee, and the Judiciary Committee to draft legislation that would allow the government to recoup “misspent public dollars” from companies that have received billions in bailout funds.
Among the proposals under consideration, Ms. Pelosi said, were authorization for the Attorney General to recover excessive compensation payments made by the companies, prohibiting abuse of so-called “retention bonuses” and new tax legislation.
Mr. Liddy, the A.I.G. chief, is scheduled to testify on Wednesday before the House Financial Services Committee, where he is likely to get an unfriendly reception. Not since Detroit’s auto executives flew to Washington in December on private jets to request billions on taxpayer aid have lawmakers voiced such seething fury at corporate America.
Several lawmakers complained that the clause seemed to have allowed the A.I.G. bonuses, but that it did not appear that the clause had been intended to specifically benefit A.I.G. or any other particular company.
Representative Eric Cantor, of Virginia, the No. 2 House Republican, said that Democrats should be taken to task for not preventing the bonuses, and that the Obama administration should do a better job of accounting how bailout money was spent. “The administration must account for the spending of taxpayer dollars and answer the question as to why taxpayers were forced to reward some of the executives who created this mess,” Mr. Cantor said in a statement.
He added: “A last-minute provision in the stimulus bill inserted by Democrats protected bonuses like those received by A.I.G. executives. Taxpayers deserve better than this from their government.”
Senator Ron Wyden, Democrat of Oregon, and Senator Olympia J. Snowe, Republican of Maine, complained on Tuesday that an amendment they had proposed — imposing tough penalties on firms that paid bonuses after taking taxpayer bailout money — had been stripped from the stimulus bill at the last minute.
The Wyden-Snowe amendment was intended to work in conjunction with Mr. Dodd’s proposal and would have required firms that paid bonuses to pay back that amount of money to the government within 120 days or face a 35 percent excise tax.
Mr. Wyden’s staff acknowledged that the provision would not necessarily have prevented the A.I.G. bonuses but would have created a disincentive for firms to pay bonuses in general.
Representative Thaddeus McCotter, Republican of Michigan, said that it would be a mistake to tax the bonuses. But he called on the Obama administration to break up A.I.G.
Mr. Liddy, the A.I.G. chief, is scheduled to testify on Wednesday before the House Financial Services Committee, where he is likely to get an unfriendly reception. Not since Detroit’s auto executives flew to Washington in December on private jets to request billions on taxpayer aid have lawmakers voiced such seething fury at corporate America.
