Outraged Congress eyes tax on AIG bonuses

By Kevin Drawbaugh

WASHINGTON (Reuters) - Outraged U.S. lawmakers moved on Tuesday toward slapping a heavy tax on millions of dollars in executive bonuses at bailed-out insurer American International Group Inc.

House of Representatives Speaker Nancy Pelosi hoped for legislation within days to recover the bonuses from AIG, a giant that once stood astride the financial system but is now surviving on a federal rescue worth up to $180 billion.

AIG did not return calls and e-mails seeking comment.

The AIG affair is sure to aggravate public anger over the bailouts for big business and sap support for the new Obama administration's efforts to stabilize the financial system and pull the economy out of recession.

With one senator remarking that top AIG managers might even consider suicide, senators proposed a special tax on $165 million in bonuses pledged to dozens of executives at what was once the world's largest insurer.

The House is making its own efforts to recoup the money. Pelosi told reporters several committees have been working on AIG legislation that the House could act on quickly.

Other options could be enlisting the U.S. attorney general to recover excessive pay at companies getting government aid and clamping down on bonuses at such companies.

Senate Democratic Leader Harry Reid said the AIG bonuses should be returned. Otherwise, he said, Congress will have an opportunity over the next few days to consider legislation that he thought would pass overwhelmingly.

AIG will send its chief executive officer, Edward Liddy, to Capitol Hill on Wednesday to testify before the powerful House Financial Services Committee.

Representative Barney Frank, chairman of that panel, said AIG should be sued "to get those bonuses back."

AIG was due to pay bonuses last Sunday to employees of its financial products unit, which made bad bets on toxic mortgages and credit default swaps that sent the company to its knees.

'THE COUNTRY IS ANGRY'

Several lawmakers introduced tax bills likely to worry other businesses taking part in the government's many financial rescue programs.

Democratic Representative Gary Peters' bill, for instance, would put a 60 percent tax on bonuses over $10,000 at any company in which the government has a 79 percent or greater equity stake. It now holds about 80 percent of AIG.

The special tax would be in addition to the top 35 percent income tax rate plus state and local taxes, making it possible to recover 100 percent of the bonuses, Peters said.