House lawmakers overwhelmingly approved a measure to tax millions of dollars in bonuses paid to employees of American Insurance Group (AIG), the troubled insurance firm that received $170 billion in federal bailout money under the Troubled Asset Relief Program (TARP). The House voted on March 19, 2009, to approve HR 1586 by a vote of 328 to 93. The legislation would impose a 90-percent tax on the bonuses of highly paid individuals who work for firms that received more than $5 billion in TARP funds.
A companion measure was introduced into the Senate on March 19, 2009. The Compensation Fairness Bill of 2009 (S 651) would impose a 35-percent excise tax on both employers and employees on retention and other bonuses. The proposal would also put a cap on the amount of income employees of these companies are allowed to defer tax free. Small banks as defined by the tax code and entities that received less than $100 million in TARP funds would be exempt from the legislation. However, in the face of growing concern over the constitutionality of the measure and republican opposition, Senate Majority Leader Harry Reid, D-Nev., backed off efforts to bring the measure to the Senate floor the week of March 23, 2009.