"Obama Uneasy About Tax on Bonuses
WASHINGTON — The White House stopped short on Friday of endorsing legislation to severely tax bonuses paid to executives of companies that accepted taxpayer bailout funds.
Administration officials said instead that President Obama would assess the potential effect of the bill that emerged from Congress on efforts to stabilize the financial system.
At the same time, as Wall Street executives anxiously pondered the ramifications of the measure quickly passed by the House this week, some Senate Republicans began to voice opposition to the legislation, saying it was hasty and abusive.
The House overwhelmingly adopted on Thursday a bill that would impose a 90 percent tax on bonuses paid since Jan. 1 by companies that owe the government at least $5 billion in bailout funds. That tax would apply to employees with family income of $250,000 or more, and would have an impact on businesses like Citigroup and Bank of America.
The Senate has proposed its own bill that would apply to all employees at companies owing $100 million in bailout money. The Senate measure would impose a 35 percent tax on the bonus recipient and on the company, which would apply to any amount above $50,000 for a merit bonus and to the full amount of any bonus paid solely to retain the worker.
Representative Barney Frank, the Massachusetts Democrat who is chairman of the Financial Services Committee, introduced another bill on Friday to curb bonuses. His measure would bar bonuses not based on merit for as long as a company owed bailout money to the government.
Wall Street firms reacted angrily to the tax proposals, with several saying they would explore ways to end their participation in the bailout program.
The chief executive of Citigroup, Vikram S. Pandit, sent employees a memorandum Friday saying, “The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees. It would affect countless number of people who will find it difficult, if not impossible, to pay back the bonuses that they earned.”
Other companies said they would probably refuse to participate in other Federal Reserve programs aimed at stabilizing the financial sector.
For private investment firms, the prospect that the rules can be changed at the whim of Congress introduced a powerful element of doubt in their calculations.
“When you don’t have the goal posts, you don’t know where to run and how far,” said Thomas J. Barrack Jr., the chief executive of Colony Capital, a $38 billion private equity firm.
Mr. Obama, who initially said he welcomed the effort by Congress to tax bonuses, is now taking a more measured approach. The White House press secretary, Robert Gibbs, said the administration would have to consider the impact of the legislation on its wider efforts to prop up banks and increase the flow of consumer credit to families and small businesses.
“The president shares the outrage and the frustration that everybody has,” Mr. Gibbs said at his daily press briefing Friday, referring to $165 million in bonuses paid by the American International Group. Mr. Gibbs also acknowledged the larger goals. “All of that will be evaluated throughout the process when a bill gets to his desk,” he said.
The White House has called on A.I.G. employees to return the bonus money and reimburse the federal government, while the company’s chief executive, Edward M. Liddy, has asked workers to give back at least half of their bonuses. Some officials said action on the tax proposals could depend on whether A.I.G. made good on the refunds.
Business leaders struggled to digest the terms of the House bill, which would clearly hit some companies and employees sooner than others. The tax would apply retroactively to bonuses paid since Jan. 1 or paid in the future. But it would not apply to bonuses paid in 2008. For example, one of the most controversial payouts on Wall Street involved the $3.6 billion bonus pool at Merrill Lynch; the firm paid out $2.5 billion of that amount in December, earlier than usual, before its merger with Bank of America.
The effect of the House measure on stock options and other benefits was not fully clear.
Nearly half of House Republicans joined most Democrats in favor of the tax on bonuses, which was approved by a vote of 328 to 93. But it was far from certain that there would be such bipartisan support in the Senate, where some Republicans began to voice objections.
“It is wrong for members of the United States Congress and the president to propose to use the taxing authority of the government in a manner that is arbitrary, punitive and targeted on a single group of people,” said Senator Judd Gregg, Republican of New Hampshire, and the party’s senior member of the budget committee.
The Senate Republican leader, Mitch McConnell of Kentucky, has not yet expressed a position on the tax proposal, but has said that Americans deserve an explanation of how the bonuses at A.I.G. were allowed, even though the government now owns nearly 80 percent of the insurance conglomerate.
“Taxpayers are still looking for an answer to the question of how this happened, so we can make sure their hard-earned pay isn’t wasted in the future,” Mr. McConnell said Thursday on the Senate floor.