House Passes 90% Wall Street Bonus Tax Amidst AIG Hysteria

The House yesterday approved a 90% Wall Street bonus tax on a 328-93 vote. Below are excerpts from a WSJ report:

The House measure was approved on a 328-93 vote and would impose a 90% surtax on bonuses granted to employees who earn more than $250,000 at companies that have received at least $5 billion from the government’s financial rescue program. The bonus tax, if approved by the Senate and signed into law, would be retroactive to Dec. 31, 2008.

Wall Street firms last year paid more than $18.4 billion in bonuses in New York City, according to the New York state comptroller, and pay experts estimated that thousands of employees would likely be affected.

Eight banks — Citigroup Inc., J.P. Morgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, PNC Financial Services Group Inc. and U.S. Bancorp — have each received more than $5 billion from the government’s Troubled Asset Relief Plan, known as TARP.

For individuals, congressional aides stressed the new levy would be in addition to the existing tax system, both the regular income tax and the alternative minimum tax. The so-called AMT is designed to ensure wealthy individuals don’t avoid federal tax liability. The House bill would also apply to the troubled mortgage giants Fannie Mae and Freddie Mac, which have received federal funds from a different program. Congressional aides said auto makers could be snared in the future if they receive government capital infusions.

The Senate will take up a similar measure, as early as next week, that is less punitive but would tax a larger number of employees and firms. That bill, jointly crafted by Democratic and Republican leaders of the Senate Finance Committee, would impose a 70% surtax on most bonuses — half paid by employees and half by firms.

In both the House and Senate bills, companies could escape the tax by repaying enough government aid. Some Wall Street firms have formally applied to repay the government ahead of schedule, and the new tax is spurring talk among others. But regulators have been leery of allowing firms to repay, in part because it could complicate efforts to promote stability in the financial system.