Treasury Secretary Timothy Geithner refused to endorse a congressional effort to heavily tax bonuses issued by TARP recipients, saying that the government needs to balance rightful outrage over executive compensation with the need to ensure a quick financial recovery.
"We are going to have to work through this and find the right balance," said Geithner at a briefing for reporters Monday morning. "It is very important that we do things that ensure and raise confidence in the American people that compensation practices are not rewarding failure, that taxpayer money is not being used to reward people who should not be rewarded and that the resources that we are providing are benefiting the overall economy and financial system."
As for the specific bill that passed the House of Representatives last week, which would tax bonuses of TARP recipients at a rate of up to 90 percent, Geithner said that he and the president were "looking carefully" at the legislative process.
"We need to balance that basic objective that we not reward failure against the hugely important imperative that we get the financial system doing what it needs to do for recovery," he said. "And we will find that balance, we will get that balance. We will work with Congress carefully to make sure we get to a point where we have an appropriate balance. I'm very confident we will work through this."
Geithner's words come as other members of the Obama economic team and high-ranking Democrats in the United States Senate have cast skepticism on the House's legislation. On Sunday, Jared Bernstein, the chief economic adviser for the vice president, said "the House bill may go too far," in terms of "using the tax code to surgically punish a small group."
But there are certain complexities to the bonus tax issue that affect Geithner and not others. The Treasury Secretary, for starters, has taken a fair amount of heat for pushing Sen. Chris Dodd to add an exemption to the stimulus package that allowed for bonuses - such as those issued by AIG - to be paid in full for the prior calendar year. And because the financial stability plan he unveiled on Monday includes a substantial component of private investment, the concern exists that a heavy bonus tax or populist anger over corporate earnings could dissuade investors from participating in the program.
"The risk we face for the economy as a whole is that after a period where there was just much too much risk taking, that right now the system is not going to take enough risk to get through this," Geithner said. "As so, right now, we have to find programs that make it possible for investors to take the risk they need so that we get out of this sooner. That will require confidence among investors that there are clearly established rules of the game, going forward. And like I said, I'm confident that we are going to find the right balance."