Wyden-Snowe Proposal Could Have Saved Govt. $3 Billion-Plus

Had Congress ultimately passed Sen. Ron Wyden and Sen. Olympia Snowe's proposal to tax a portion of bonuses issued by bailout recipients, the government could have raised more than $3 billion from 2008 alone, an analysis by the Joint Tax Committee showed.

Wyden and Snowe had proposed, during the crafting of the stimulus legislation, that those companies receiving TARP or bailout funds face a choice when it comes to the bonuses given to its employees: either cap those payments at $100,000, pay a 35 percent excise tax on anything above that level, or repurchase TARP shares in the amount that exceeded $100,000.

Wyden asked the Joint Tax Committee to make an estimate of just how much money such restrictions and taxes on 2008 bonuses alone would save over time. The findings, provided by his office to the Huffington Post, showed that from 2009 through 2012, the government would either retain or receive $3.189 billion (a large chunk in the first year).

Based on data showing that in 2008, financial institutions received more than $274 billion through TARP while paying out an estimated $18.4 billion in employee bonuses, the breakdown is as follows:

2009: $1.275 billion in taxes on bonuses paid back to the government 2010: $957 million 2011: $797 million 2012: $159 million

This, keep in mind, would be the revenue if the excise tax were on bonuses exceeding $100,000. With the impending reintroduction of their amendment - in the form of stand-alone legislation - the 35 percent tax would be levied on bonuses over $25,000.

The one potential hurdle to the Wyden-Snowe amendment would be legality. But on this front as well, the duo seems in the clear. The Senators had the Joint Tax Committee prepare a study on the constitutionality of their proposal in addition to the cost-benefit analysis. And the results came back favorably. Here's a PDF of the letter.

"I believe there is a powerful argument that your proposal is simply not retroactive. Taxpayers can avoid the tax completely by repurchasing shares they sold to the United States; the excise tax would be imposed, not on prior bonuses, but on the taxpayer's affirmative post-enactment decision not to repurchase those shares at the same price that the shares were sold to the United States."

"Even if the excise tax were... viewed as having retroactive effect, the Supreme Court has generally given a high level of judicial deference to economic legislation and has repeatedly upheld retroactive taxation as constitutional, so long as the legislation is 'supported by a legitimate legislative purpose furthered by rational means...'"

[snip]
"Your legislative proposal presents a particularly strong case for constitutionality since it has only a modest look-back-period, as was the case in Darusmont, and is arguably a curative measure (with regard to the executive compensation provisions of TARP), as was the case in Carlton.

Edward D. Kleinbard
Chief of Staff
Joint Committee on Taxation

Comments

[Bitsko]

"Could have"? Could shoulda woulda. Wishing doesn't make it so, especially when you're talking about the federal budget.

[StL]

I wish people would check the facts. Why assume that the bankers, wall street executives and insurance people are republicans? Did anyone here check to see who received the most campaign funds from these groups. You folks need to be team players and be realistic. They are banking on us eating eachother to keep their greedy plan going. We need to wise up and check the facts.

[Concerned1234]

People are confused enough so why are you mixing the Stimulus bill with the TARP Money. This issue is now a blogsphere circle jerk. Beware people big corp has overtaken the blogshpere it's all down hill from here. Where before it was the cuting edge for discussion now it's becoming a megaphone for the MSM and its GOP agenda.

[camper65]

You can take off your aluminum foil hat, now.

[viflyer]

Lobbyists run Congress. It is all so simple.

Lobbyists bribe Senators and Congressman, and simple strait forward legislating for the people turns into legislation for corporations.

Lobbyists are the REAL criminals in Washington.

But you won't here ANYTHING from ANYONE about curbing their power.

As long as the system is this corrupted by money nothing will change and the country will DISSOLVE. I don't think people have any understanding of how destructive the system has been. It caused the demise of the world financial system

[johnsonc20]

Yes, but was it lobbyists that told President Obama to have Treasury kill Wyden's amendment in conference committee? The President has to take responsibility for this. He can't blame Bush when he had a chance to do something about this in the stimulus bill and acted to kill it. This is on our President. We will have to watch him like a hawk.

[Dynamohum]

You are GROSSLY misinformed and totally naive and ignorant of the facts. More repuke carp.

[viflyer]

You REALLY WANT to miss the point don't you. Is it that important to you to pin it all on Obama??? Especially when you don't have ANY facts to back it up???

[justobserve]

How on earth people get bonus from the bailout money? If those excutives don't return the money to the taxpayers, those bonuses should be taxed at 100%.

[grf67]

Excellent hindsight is very common,but not useful. If the Supreme Court had given the 2000 election to Gore, we could have saved a trillion dollars in Iraq alone. This is interesting, but at this time not useful.

[johnsonc20]

This is not ancient history and it didn't take "hindsight" to figure out what was happening. Obama deserves the blame for this. He should fire Geithner and Summers now and start fresh with people who aren't apologists for the crooked game Wall Street has been playing.

[Dynamohum]

Just another Repuke...Obama fixation. Blame everybody but immoral, corrupt and destructive repubes.

[ChinaC]

Pass the swords, please! Sen. Chris Dodd got a sweetheart deal from Countrywide Mortgage and now its reported that Dodd removed the provision limiting executive bonuses.

Sen. Barney Frank insisted that Freddie Mac was solvent as Franklin Raines (Clinton administration) was paid $90 million in 6 years. Therefore its a myth that public service does not pay well.

Obama promised change. But however he signed a Stimulus bill that Bush had vetoed and then signed and Omnibus bill that had more than 8,000 earmarks totaling more than $400 billion.

To me the $165 million for bonuses is chump change. So when do the automatic pay raises for the actors on Capitol Hill kick in?

[calickizzle]

Blah blah blah.

Bush vetoed the stimulus bill? Huh?

[MNTom]

The automatic pay raises was passed by the GOP lead congress and signed by Bush.

[viflyer]

You REALLY have to do some research instead of regurgitating Republican talking points. It shows your brainwashed ignorance.

[camper65]

Facts, please.

[grata2ude]

There is a banker in the world who wouldn't do anything to protect their own. If you shake a bankers hand you better check to see if all your fingers are still there when you bring your hand back cause their steal your fingers if you're not watching.

I think President Obama has made a big mistake in Tim Gethner. Get this fox out of the hen house.

[Daniboy]

Barney and Dodd will lead us out of this dark forest? As Libs, we must trust these fine, upstanding gentlemen.

[watchTVgetSTUPID]

Eliot Spitzer.

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

[watchTVgetSTUPID]

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.


But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

[watchTVgetSTUPID]

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.
So here are several questions that should be answered, in public, under oath, to clear the air:
What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?
Was it already known who the counterparties were and what the exposure was for each of the counterparties?
What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.

Why weren't the counterparties immediately and fully disclosed?
Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.

[ChinaC]

I got called out by CindyKay for not paying attention. Thank You. I confused TARP with the Stimulus bill, otherwise called the Porkapalooza. So much money is being spent so fast that it''s difficult to keep up.

I seem to recall however Obama making fun of McCain for suspending his campaign over the TARP funds. The House Republicans refused to back President Bush on the TAPR bailout.

Republicans are accused of being the Party of "no", so if you are a Republican that's not a bad thing.

[nomobull]

HE WAS MADE FUN OF BY A LOT OF US WHO SAW THROUGH HIS SCHEME BY THE WAY HE DIDN'T SUSPEND HIS CAMPAIGN. NICE TRY

[camper65]

What??

[killpack]

We could have saved a lot more than that had Congress just listened to the people. What's that down there? Oh, just a poll that came out around the time of the AIG bailout.

"By a margin of 55 percent to 31 percent, Americans say it's not the government's responsibility to bail out private companies with taxpayer dollars, even if their collapse could damage the economy, according to the latest Bloomberg/Los Angeles Times poll."

[bobolinkx]

'Shoot, aim, ready' characterizes almost all of the clamor over these AIG retention "bonuses". Saving $3M in this way would put much of $1.6T at great risk. Those remaining AIG employees who are now "unwinding" the CDSs might become convinced that their employer will later eliminate their incomes. They might resign, leaving AIG to collapse - bringing down the entire banking system, and destroying most of what remains of a great many insurance policies, pensions, annuities, and 401-k accounts. Or, they might demand a $1M advance on their compensation. (Do you really know that there are sufficient unemployed financial geniuses ready to take over without losing a beat?)

This business is more complicated than most in the media or in our Congress understand. I am not a Geithner fan, but I do believe he understands these things better than 99.9% of us. Please give the man sufficient time to do his part.

[mamacat]

Median family income in the U.S.: less than $50,000.

Number of families that $3 billion + would have supported for a year: over 60,000.

But whay the hey, those people who caused this mess need to be rewarded, right?

[camper65]

Don't forget their whores in Congress!

[CaptBangs]

Sorry, I'm not understanding: Who would have paid a 35% tax on the bonuses? AIG? Or the recipients of the bonuses? If AIG, I don't think the tax would have been a disincentive if management had concluded that it was contractually obligated to pay the bonuses; they would just have added another $57.75 million to their next request for bailout money. And if the recipients, they're already in the 35% tax bracket, so this provision wouldn't have made any difference to them; whatever the source of their marginal income, it gets taxed at 35%.

Yes, it's outrageous that these people who took unprecedented bets with other people's money have gotten huge bonuses after having screwed up so royally, but this is a tempest in a teapot. Let's make sure that we're aware of the contingent claims hanging over institutions that get bailout funds, figure out how to minimized those, and MOVE ON!

[giita]

National outrage over $176 Mill. is righteous & reasonable, until we recall that the early Iraq Reconstruction process LOST $8 Billion in 2003, literally lost track of it, and lefties couldn't get anyone to pay attention. That's 80 times as much...and how many billions of taxpayer $$ got pissed away to KBR for shoddy "troop support," never accounted for, and the secrets sealed forever behind exec privilege?
All of these numbers are so huge it's hard to think straight, but we have got to remember that even these greedy corporations are only one end of the axis of american evil. Violent death wrought on thousands of people—troops and local civilians—has got to matter as much as destruction of pension funds.
Then again it is hard enough to believe that the financial system is broken for good; most people still cannot process the appropriate righteous rage at Bush & crew. It's too huge. There will be many more national storms to come, and each will both deflect and reveal some of the anger that's been building since Abu Ghraib.