TOPICS > Economy

Anger at AIG Continues as House Passes Tax on Bonuses

March 19, 2009 at 6:00 PM EDT
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The House voted Thursday to impose a 90 percent tax on some bonuses at AIG and other bailout-funded companies. Editorial writers describe reaction to the controversy across the country.

JIM LEHRER: Congress made the first move today to get back the AIG bonus money. The House approved heavy taxes on those who received the $165 million last weekend, but the vote came amid an escalating war of words over who’s to blame.

NewsHour correspondent Kwame Holman has our lead story report.

KWAME HOLMAN: The bill was the work of House Democrats, and it took aim at bonuses paid at AIG and other firms getting government rescue funds.

REP. EARL POMEROY, D-N.D.: We will not tolerate these actions. We’re not going to wring our hands, shake our heads, look at our feet, and mumble, “Ain’t it a shame?” Starting right here, right now, we are saying, “No more.” We are saying, “Give us our money back!” And we will not stop until we get it back.

KWAME HOLMAN: The plan is to levy a 90 percent tax on the bonuses. It’s triggered if an employee has an income of more than $250,000 and if his or her company received at least $5 billion in government aid.

That also would include mortgage-lending giants Fannie Mae and Freddie Mac, now under government control. They’ve reported plans to pay bonuses of up to $600,000 to top executives.

HOUSE MEMBER: This will be a 15-minute vote.

KWAME HOLMAN: The bill passed 328-93. Nearly all Democrats supported it, but Republicans were evenly divided: 85 voted yes, 87 voted no.

Some, including California’s Dan Lungren, said it would violate the Constitution by singling out specific companies for punitive taxation.

REP. DAN LUNGREN, R-Calif.: If we overturn the Constitution to show our outrage, no single American is safe. Because in the future what we will do is say we have a precedent that, when we have an unpopular group, when we have a group that deserves some punishment, we won’t go through the real laws. What we’ll do is we will pass a new tax law with confiscatory rates and say, “We’ve done it for the American people.”

KWAME HOLMAN: In response, Texas Democrat Sheila Jackson Lee said there’s no question the measure would survive any legal challenge.

REP. SHEILA JACKSON LEE, D-Texas: I’m prepared to battle in the courts. Why? Because they look at issues of equity. What does equity mean? It means, who’s in here with unclean hands?

And if there is a situation where they are taking federal money, such as AIG, and all of a sudden they give retention bonuses, our courts will look at this legislation and say it is fair to give the money back to the American people because the circumstances have changed.

KWAME HOLMAN: But Republicans also charged the real issue was that Democrats opened the door to the AIG bonuses in the economic stimulus bill approved last month.

REP. STEVE LATOURETTE, R-Ohio: But almost every person on the other side of the aisle voted for the stimulus bill that had the provision in that protected, authorized, and allowed these bonuses, and today they’re shocked.

Now, Ross Perot, when he ran for president in 1992, he talked about the “giant sucking sound.” Well, today there’s another giant sucking sound going on in Washington, D.C., and that’s the tightening of sphincters on both ends of Pennsylvania Avenue as people are having to explain who put into the stimulus bill this provision of law.

KWAME HOLMAN: Some of the finger-pointing in the halls of Congress focused on Christopher Dodd, the Senate Banking Committee chairman. He amended the stimulus bill last month to cap bonuses, but then he agreed to change it, exempting bonus agreements already in effect, such as those at AIG.

Dodd told CNN last night the Obama administration sought the change.

SEN. CHRIS DODD, D-Conn.: The alternative was losing, in my view, the entire section on executive excessive compensation. Given the choice — this is not an uncommon occurrence here — I agreed to a modification in the legislation, reluctantly.

I wasn’t negotiating with myself here. I wasn’t changing my own amendment. I was changing the amendment because others were insisting upon it.

KWAME HOLMAN: A report in today’s Wall Street Journal said Treasury Secretary Timothy Geithner and the president’s chief economic adviser, Lawrence Summers, lobbied Dodd, but did not suggest specific changes.

Geithner said today he simply voiced concerns about the legal implications of Dodd’s amendment.

It remained unclear if any cap on compensation, however written, could override legally binding contracts at AIG. It was equally unclear when the bonus storm would subside. Senate Republicans demanded hearings before any vote on that side of the Capitol.

SEN. JOHN ENSIGN, R-Nev.: If we don’t figure out what happened now, how do we fix or how do we prevent it from happening in the future? And maybe there are other instances that have happened.

And so before we, you know, try to fix just the AIG bonuses, let’s find out what happened, so that, if there is a fix that we can all agree on, we can agree to fix all of the situations and not just this one isolated — which may not just be an isolated incident with AIG.

KWAME HOLMAN: And Republican Congressmen Connie Mack and Darrell Issa went further, demanding that Secretary Geithner resign.

President Obama did not mention Geithner today at a town hall in Southern California, but he did appeal to Americans not to turn against the overall financial rescue effort.

U.S. PRESIDENT BARACK OBAMA: It’s my responsibility to fix the system. But fixing the system requires us understanding that, if banks are not solvent, if they are not lending, then businesses are not going to be able to invest, we are not going to be able to create jobs, and we can be as mad as we want, but the fact of the matter is, we’ve got to work through this huge mess that was made in the financial system. It’s going to cost some money. It’s not going to be pretty. People are going to be frustrated. And we are going to get it done.

KWAME HOLMAN: The Federal Reserve also is the focus of questions after reports it learned of the AIG bonuses three months ago. Administration officials say the Fed did not tell Secretary Geithner until last week.

And more bad news about companies receiving federal rescue funds: A House subcommittee reported today that 13 such firms failed to pay more than $220 million in taxes.

REP. JOHN LEWIS, D-Ga.: If we looked at all 470 recipients, how much would they owe? Are they signing contracts knowing that they owe taxes, but thinking they will not get caught? Did then-Secretary Paulson turn a blind eye? Either way, this is shameful. It is a disgrace.

KWAME HOLMAN: The outrage was not limited to lawmakers today. The Service Employees International Union staged protests in Washington and other cities around the country to demonstrate anger at giving taxpayer money to AIG and other financial firms.

Editorial writers weigh in

Dan Haley
Denver Post
We've sort of watched the tide turn from anger at AIG on Sunday, when letters started coming in, Monday, slowly turning into an anger at Congress.

JIM LEHRER: Judy Woodruff has more about the reaction to the AIG story outside Washington.

JUDY WOODRUFF: And for that outside perspective, we turn to three editorial page editors: John Diaz of the San Francisco Chronicle; Dan Haley of the Denver Post; and J.R. Labbe of the Fort Worth Star-Telegram.

Thank you all three for being with us.

Let's start out west with you in San Francisco, John Diaz. First of all, are you hearing already from your readers about the move in the House, the Congress today, to slap a 90 percent tax on these bonuses to AIG?

JOHN DIAZ, San Francisco Chronicle: We have. The mail continues to come in, in pretty intense volume. President Obama last night in Orange County talked about the political tizzy in Washington over this bailout. Well, I have to say, this is one tizzy that goes far beyond the Beltway.

And what we're seeing in the letters to the editor that we're getting -- and I suspect members of Congress are getting the same message -- is that Americans are not just upset at AIG and its chief executive, Edward Liddy, over this. They see Congress as culpable, that it had a chance back in February to stop these bonuses, albeit in a bit of a legally questionable way, but it had the chance and passed on it. So there's political heat that Washington is feeling on this.

JUDY WOODRUFF: And what about the vote to put that 90 percent tax on the bonuses?

JOHN DIAZ: Well, here's my sense on it, Judy. I think it's politically safe, certainly politically understandable. I also think it's constitutionally questionable, the idea that Congress did not move to restrict these bonuses just in February, now it turns around and has a very punitive tax.

I thought, in your previous segment, our former attorney general, Dan Lungren, put it pretty well. This question of retroactivity is not just a constitutional question, but it's a question of fairness. The opportunity to move on this was before that money went out.

JUDY WOODRUFF: All right, Dan Haley in Denver, what are you hearing there just in the last few hours about the vote on the tax and about the bonuses overall?

DAN HALEY, Denver Post: We started getting e-mails and letters on the bonus tax yesterday, actually, when it started leaking out of Washington that this is something they might do.

And it's interesting. We've sort of watched the tide turn from anger at AIG on Sunday, when letters started coming in, Monday, slowly turning into an anger at Congress.

And I think, because, you know, Congress obviously should have known about this -- these were legally paid bonuses, it was in the stimulus bill. And I think now, when you talk about this 90 percent tax, it's too late. I mean, isn't this what Richard Nixon did, he went after his enemies through the IRS?

What you're seeing is a Congress that is so spooked by their constituents that they're trying to do anything they can to get some of this money back. And whether it's constitutional, I don't know. I guess we'll find out.

Public angry with Congress

J.R. Labbe
Fort Worth Star-Telegram
If one thing has happened through this entire AIG bonus scandal, it has united the country. As my colleague, Jack Smith, said in our editorial today, outrage is all the rage in America right now.

JUDY WOODRUFF: J.R. Labbe in Fort Worth, are you picking up that same sense there, that people are turning their anger to the Congress?

J.R. LABBE, Fort Worth Star-Telegram: Well, I think here, Judy, it's gone from angry at the Congress for even passing the stimulus bill and the bailouts in the first place to anger at AIG.

And then, yes, we're seeing what Dan and John are seeing. Now some people are saying it's ridiculous for Congress to participate in some kind of kabuki theater where they're trying to deflect attention from their own culpability in this problem by now coming back and saying, "We're going to tax in an ex post facto kind of a way after the money is already out."

If one thing has happened through this entire AIG bonus scandal, it has united the country. As my colleague, Jack Smith, said in our editorial today, outrage is all the rage in America right now.

JUDY WOODRUFF: Well, what do your readers think should be done? John Diaz, back to you in San Francisco. Are people coming -- are they coming up with their own solutions? Or are they simply saying, "We don't like what we're seeing out there"?

JOHN DIAZ: Judy, in terms of the bonuses, one of the overriding themes that we see is disclosure. Let's have an opportunity to see who is actually receiving these bonuses.

But in my gauge of this is that the overriding problem, really, is the lack of understanding that most people have of the complexity of both the stimulus bill and these bank bailouts. We're looking at all together a sum total of somewhere around $1.5 trillion.

I don't think the average American really understands how this money has been put together and whether it's really going to deliver the results that it's promised. I'm not sure how many members of Congress understand.

We had a figure in our paper the other day, if you take all the money that has gone to both the bank rescue and the economic stimulus, you could write a check to all 140 million American workers for somewhere around $10,700. That's a lot of money.

JUDY WOODRUFF: So lack of understanding. Dan Haley in Denver, do you get a sense that people are feeling overwhelmed with all of this? I don't want to put words in your mouth.

DAN HALEY: Well, it's not so much overwhelmed. I think people have a fairly good idea of what's happening.

What our readers are telling us is they're hurting. They're not doing -- you know, they're having a hard time in this recession, and they're seeing people who work for a failing company, who probably drove this company into the ground and put the economic future of this country at risk, getting bonuses. And they don't like it.

JUDY WOODRUFF: And, again, they're blaming the Congress and they're blaming these companies, because they think they're getting favorable treatment?

DAN HALEY: Right. I think it started with AIG, and then it's slowly turning into Congress, and we're looking at -- and watch what's happening now. Congress is rushing through these ways to try to get money back from AIG. And the last time they rushed through like that was in the stimulus.

And so I think you'll see people start to kind of come around and question the act of what Congress is doing.

Government's role in the rescue

John Diaz
San Francisco Chronicle
I don't know that this administration or certainly the administration before it has really articulated why what it is doing, on the magnitude of what it is doing is really going to help, and I don't think people have necessarily seen those results.

JUDY WOODRUFF: J.R. Labbe in Fort Worth, what are your readers saying about the bigger picture, this notion that the government has had to put -- or has put, I should say, so much money into the financial sector, into these big institutions, the banks and AIG?

J.R. LABBE: Well, Texans are pretty self-reliant, independent cusses in the first place. They haven't been happy from the bailouts that went for the automakers, much less what they've been seeing through the stimulus bill and the bonuses to AIG, and what the other issues that we may not even know about yet that seem to be dribbling and drabbling out.

From my understanding of what many of my readers have written, they would just assume that the government get out of the business of propping up private industry in the first place, if you're going to stand or crawl on your own deeds, one way or the other.

And they are not happy, for the most part, from the letters and the blogs that we see that government continues to pour money what they believe is a rat hole. It's going to be ugly; it's going to be painful. But drawing this out and causing these kinds of problems and additional crises of faith within the community and within the American people is not helping.

JUDY WOODRUFF: So "ugly" and "painful." Does that mean they're prepared, they say, to seize these institutions fail, to go under?

J.R. LABBE: I think there is a portion of our readership that is willing to let that happen. It was interesting to listen to Sheila Jackson Lee in your earlier piece saying that this will eventually go to court and, by golly, we'll find out that our vote to tax the money will be constitutional.

The reason why they let them have the money in the first place is because they said we didn't want to go to court if we said -- if Edward Liddy stood up and said, "No, you're not going to get your bonus money. Sue me."

So it seems like we are on the hook for the money and we're still going to be on the hook for the lawsuits when it comes to the end.

JUDY WOODRUFF: And to you, again, John Diaz in San Francisco, this idea of the government doing as much as it has. What are your readers saying about that versus just letting some of these institutions go?

JOHN DIAZ: Well, we hear it two ways from our readers. One, we hear from readers who don't think government should be involved, even here in San Francisco.

The other thing that we hear, though, time and again is a lot of frustration with the breakdown of the financial system, particularly last fall. We heard from small businesses that could not get the loans that they needed to keep their inventories going. Here in California, we had a problem in terms of bonds being imperiled, roadwork being delayed because of the difficulties in the financial system.

So I think there is a recognition among a lot of people that something must be done, to quote an editorial cliche, but the question is, I don't know that this administration or certainly the administration before it has really articulated why what it is doing, on the magnitude of what it is doing is really going to help, and I don't think people have necessarily seen those results yet.

Obama's approval ratings

Dan Haley
Denver Post
I think people are starting to question the confidence and the leadership coming out of Washington. It goes to Timothy Geithner, and then that goes to Barack Obama.

JUDY WOODRUFF: Are you hearing something similar to that in Denver, Dan Haley?

DAN HALEY: Well, I think what's happened is the conversation has sort of -- the dialogue has evolved over the months. At the very beginning in September, when President Bush came out and sort of looked spooked and like a deer in headlights telling us about -- the financial markets were frozen, people wanted something to be done, and they were OK with it at that time.

We became an Obama state in November and went from purple to blue. And a lot of our readers wanted to see what Obama could do and wanted to see his programs work, and so he had support early on. He came here and signed the stimulus bill.

And then, over the last week or so, you begin to see people starting to question this now and looking at things a little more closely.

JUDY WOODRUFF: And so do you think, Dan Haley, that his approval -- are you starting to see that slip?

DAN HALEY: I haven't seen any polls or anything yet. But just from reading the letters to the editor that we've received, I think people are beginning to question him a little more, and I think you could probably see him slip.

I think people are starting to question the confidence and the leadership coming out of Washington. It goes to Timothy Geithner, and then that goes to Barack Obama.

And one of our concerns on the editorial board, or the editorial page, is that what we're seeing now could begin to affect not only the economic recovery, but other items that might be on President Obama's agenda.

JUDY WOODRUFF: Let me quickly turn to both you, J.R. Labbe, first and then to John Diaz on this question of what you sense about how strong the support for the president is.

J.R. LABBE: Well, I live in a part of the country that is reddest of red and has not even turned a shade or hue of purple yet. So the support for President Obama has never been overwhelming in Tarrant County, Texas, up until now.

I think that we put an awful lot of hope and faith in a president and we don't pay attention to the fact that it's the Congress that is responsible for allocating funds and for passing fiscal bills. And we have seen an uptick in the number of letters that say, "By golly, we ought to have term limits for members of the House and the Senate and get rid of some of these rascals and get other people in."

And what we have continued to do is to caution our readers that you do have term limits. They come up every two years. Pay attention to who you're electing.

JUDY WOODRUFF: Just a quick sentence from you, John Diaz, on the president's approval, whether it's slipping?

JOHN DIAZ: I don't think so at this point, Judy. The outrage I see is very personalized. It's directed at the AIG executives, Timothy Geithner. The name that we haven't seen that much is Barack Obama, in terms of being a target of this wrath.

I think he recognizes it. I think what we're seeing in Southern California is a move for him to distance himself from this scandal and move forward.

JUDY WOODRUFF: All right. We are going to leave it there. John Diaz in San Francisco, J.R. Labbe in Fort Worth, Dan Haley in Denver, we appreciate it. Thank you all.