In Sept. 2008, the United States government agreed to give American International Group, Inc. (AIG), a world leader in insurance and financial services, an $85 billion emergency rescue loan to save the ailing company. To date, the company has received a total of $170 billion in taxpayer bailout funds.
Since that initial bailout decision was announced, AIG has been criticized for treating executives to a lavish week-long retreat in October, 2008 and most recently for giving executives $165 million in bonuses.
AIG has said that they are legally obligated to pay these bonuses because of contracts that were signed before they received the bailout funds.
This revelation has publicly outraged both Democrats and Republicans and local elected officials are weighing in on how to stop these bonuses and how to stop this from happening again in the future.
Congressman Steve Israel introduced new legislation this week to tax Troubled Assets Relief Program (TARP) funds, like those set to go to AIG, executives, at 100 percent.
"American families shouldn't be forced to reward these professional financial failures with extravagant bonuses that could buy fancy cars and yachts. AIG may not like it, but since they had to come to the federal government for help, the federal government now has a say in how they spend taxpayer money. If we can't kill the bonuses, we'll tax the bonuses," said Israel.
Currently, the IRS withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million dollars. Israel's proposal, The Bailout Bonus Tax Bracket Act of 2009, would tax bonuses over $100,000 disbursed to employees of companies receiving TARP funds. Because bonuses are treated as taxable income, this bill applies a separate "Bonus Bailout" rate to the TARP bonus. Bonuses would be taxed beginning with those disbursed this year.
For example, if an AIG employee's taxable income is $750,000 which includes the $150,000 AIG bonus received this year, that employee will pay the top marginal rate on $500,000 of personal income, and then the "Bonus Bailout" tax rate of 100 percent on the $150,000 TARP bonus.
Since AIG is based in New York, Assembly Republican Leader Jim Tedisco has asked state Attorney General Andrew Cuomo to launch an immediate investigation and indicated that his Conference would consider holding public hearings to compel AIG to open its books and provide full disclosure of how it spent billions in taxpayer monies provided through the TARP. AIG had originally sought to give out nearly $1 billion in bonuses and executive retention pay, but reduced that figure to $165 million.
"Today I am calling on Attorney General Andrew Cuomo to launch an immediate investigation into potential misconduct at AIG and require it to open its books so we can learn exactly how it has spent - or possibly misspent - any of the taxpayer funded bailout it received," Tedisco stated.
Assemblyman Rob Walker supports an investigation into AIG.
"It is outrageous that following the collapse of major financial institutions, AIG would choose to accept federal bailout money paid for by the taxpayers and then hand out $165 million in bonuses," said Walker. "At a time when middle-class families throughout New York are struggling and unemployment is threatening to reach 10 percent statewide, Attorney General Cuomo is doing the right thing and investigating just how this money was distributed and taking the appropriate actions necessary to regain the trust of New Yorkers once again."