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Bonus Limits Obama Cut From Stimulus

From the archives of The Washington Independent:

Wyden-Snowe Executive-Pay Limits Sliced from Stimulus

By Mike Lillis 2/12/09

The finance industry might be floundering, it might be broke, and it might be ringing the tin cup for federal help. But don’t say Wall Street has lost its sway over lawmakers on Capitol Hill.

Congress agreed on a final stimulus plan yesterday, but not before stripping out a provision forcing bailed-out banks to repay 2008 bonuses. Under the provision, sponsored by Sens. Ron Wyden (D-Ore.) and Olympia Snowe (R-Maine), companies receiving funding under the Troubled Asset Relief Program (TARP) would be forced to repay Washington for any 2008 bonuses in excess of $100,000, or pay a 35-percent tax on funds not returned. Wyden is vowing to continue the push to have it passed. From his statement:

Wall Street’s clout continues unabated in Washington, despite having wrecked our economy,” said Wyden. “I am unbelievably disappointed, but I want it understood that I will be back again and again to recover for taxpayers the exorbitant Wall Street bonuses paid for with TARP money.

It wasn’t supposed to play out this way.

In the wake of reports revealing that Wall Street firms doled out billions in executive bonuses — even after they’d accepted hundreds of billions of federal dollars — lawmakers had vowed to take steps to ensure that TARP funds weren’t going straight into the pockets of the same folks who’d run the banks into the ground.

Indeed, the Senate stimulus bill included several provisions — added as amendments during the floor debate — to do just that. One provision, sponsored by Sen. Claire McCaskill (D-Mo.), would have capped executive compensation at $400,000. Another, sponsored by Sen. Christopher Dodd (D-Conn.), would have banned bonuses for the 25 highest-paid employees of companies receiving TARP funds. The Wyden-Snowe provision was included as well, but was sliced for reasons that still aren’t clear.

The removal is strange, if only because the measure was expected to save the federal government more than $3 billion.

For the record, here is the text of the Wyden-Snowe amendment, via GovTrack:

S. Amdt. 468 to H.R. 1 — 111th Congress

[From FEBRUARY 6, 2009]

SA 468. Mr. WYDEN (for himself and Ms. Snowe) submitted an amendment intended to be proposed to amendment SA 98 proposed by Mr. Inouye (for himself and Mr. Baucus) to the bill H.R. 1, making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization, for fiscal year ending September 30, 2009, and for other purposes; which was ordered to

lie on the table; as follows:

At the end of title I of division B, insert the following:

SEC. 1903. TREATMENT OF EXCESSIVE BONUSES BY TARP RECIPIENTS.

(a) In General.–If, before the date of enactment of this Act, the preferred stock of a financial institution was purchased by the Government using funds provided under the Troubled Asset Relief Program established pursuant to the Emergency Economic Stabilization Act of 2008, then, notwithstanding any otherwise applicable restriction on the redeemability of such preferred stock, such financial institution shall redeem an amount of such preferred stock equal to the aggregate amount of

all excessive bonuses paid or payable to all covered individuals.

(b) Timing.–Each financial institution described in subsection (a) shall comply with the requirements of subsection (a)–

(1) not later than 120 days after the date of enactment of this Act, with respect to excessive bonuses (or portions thereof) paid before the date of enactment of this Act; and

(2) not later than the day before an excessive bonus (or portion thereof) is paid, with respect to any excessive bonus (or portion thereof) paid on or after the date of enactment of this Act.

(c) Definitions.–As used in this section, the following definitions shall apply:

(1) EXCESSIVE BONUS.–

(A) IN GENERAL.–The term "excessive bonus" means the portion of the applicable bonus payments made to a covered individual in excess of $100,000.

(B) APPLICABLE BONUS PAYMENTS.–

(i) IN GENERAL.–The term "applicable bonus payment" means any bonus payment to a covered individual–

(I) which is paid or payable by reason of services performed by such individual in a taxable year of the financial institution (or any member of a controlled group described in subparagraph (D)) ending in 2008, and

(II) the amount of which was first communicated to such individual during the period beginning on January 1, 2008, and ending January 31, 2009, or was based on a resolution of the board of directors of such institution that was adopted before the end of such taxable year.

(ii) CERTAIN PAYMENTS AND CONDITIONS DISREGARDED.–In determining whether a bonus payment is described in clause (i)(I)–

(I) a bonus payment that relates to services performed in any taxable year before the taxable year described in such clause and that is wholly or partially contingent on the performance of services in the taxable year so described shall be disregarded, and

(II) any condition on a bonus payment for services performed in the taxable year so described that the employee perform services in taxable years after the taxable year so described shall be disregarded.

(C) BONUS PAYMENT.–The term "bonus payment" means any payment which–

(i) is a discretionary payment to a covered individual by a financial institution (or any member of a controlled group described in subparagraph (D)) for services rendered,

(ii) is in addition to any amount payable to such individual for services performed by such individual at a regular hourly, daily, weekly, monthly, or similar periodic rate, and

(iii) is paid or payable in cash or other property other than–

(I) stock in such institution or member, or

(II) an interest in a troubled asset (within the meaning of the Emergency Economic Stabilization Act of 2008) held directly or indirectly by such institution or member.

Such term does not include payments to an employee as commissions, welfare and fringe benefits, or expense reimbursements.

(D) COVERED INDIVIDUAL.–The term "covered individual" means, with respect to any financial institution, any director or officer or other employee of such financial institution or of any member of a controlled group of corporations (within the meaning of section 52(a) of the Internal Revenue Code of 1986) that includes such financial institution.

(2) FINANCIAL INSTITUTION.–The term "financial institution" has the same meaning as in section 3 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5252).

(d) Excise Tax on TARP Companies That Fail to Redeem Certain Securities From United States.–

(1) IN GENERAL.–Chapter 46 of the Internal Revenue Code of 1986 (relating to excise tax on golden parachute payments) is amended by adding at the end the following new section:

"SEC. 4999A. FAILURE TO REDEEM CERTAIN SECURITIES FROM UNITED STATES.

"(a) Imposition of Tax.–There is hereby imposed a tax on any financial institution which–

"(1) is required to redeem an amount of its preferred stock from the United States pursuant to section 1903(a) of the American Recovery and Reinvestment Tax Act of 2009, and

"(2) fails to redeem all or any portion of such amount within the period prescribed for such redemption.

"(b) Amount of Tax.–The amount of the tax imposed by subsection (a) shall be equal to 35 percent of the amount which the financial institution failed to redeem within the time prescribed under 1903(b) of the American Recovery and Reinvestment Tax Act of 2009.

"(c) Administrative Provisions.–

"(1) IN GENERAL.–For purposes of subtitle F, any tax imposed by this section shall be treated as a tax imposed by subtitle A for the taxable year in which a deduction is allowed for any excessive bonus with respect to which the redemption described in subsection (a)(1) is required to be made.

"(2) EXTENSION OF TIME.–The due date for payment of tax imposed by this section shall in no event be earlier than the 150th day following the date of the enactment of this section.".

(2) CONFORMING AMENDMENTS.–

(A) The heading for chapter 46 of such Code are amended to read as follows:

"Chapter 46–Taxes on Certain Excessive Remuneration

"Sec..4999..Golden parachute payments.

"Sec..4999A..Failure to redeem certain securities from United States."

(B) The item relating to chapter 46 in the table of chapters for subtitle D of such Code is amended to read as follows:

"Chapter 46. Taxes on excessive remuneration.".

(3) EFFECTIVE DATE.–The amendments made by this subsection shall apply to failures described in section 4999A(a)(2) of the Internal Revenue Code of 1986 occurring after the date of the enactment of this Act.

This is the text that the Obama administration ultimately had removed from the stimulus bill.

And yet Mr. Obama insists he is not to blame.

This article was posted by Steve Gilbert on Friday, March 20th, 2009. Comments are currently closed.

7 Responses to “Bonus Limits Obama Cut From Stimulus”

  1. Consilience

    Steve, as always, excellent and informative post. The rage being manufactured by TAO is geared toward the nitwits he’s is asking to “pledge” to proselytize his budget…this man and his co conspirators in Congress are a menace. The mindless nitwits who follow on TAO’s every word and don’t have real jobs and want the gov’t to take care of their every need—-they NEED something to hate to occupy their small, public-educated-minds—-these folks are to be pitied—but not so much as to allow them to wreck our Republic.

  2. proreason

    “And yet Mr. Obama insists he is not to blame.”

    It’s not myyyyyyyyyy fault. Georgey hit me before I hit him. And he took my toy too. And he called you a bad name. And he broke Sally’s doll yesterday.

  3. Weasel

    So Obama, Dodd and the rest of the “dims” were for the bonuses before they were against them…

    And I’m not a Constitutional law expert (and apparently neither is Obama or any of the “dims” in congress), but doesn’t Article 1 Section 9 say, “No bill of attainder or ex post facto Law shall be passed.”???

    This has unconstitutional written all over it. I sure hope the SCOTUS gives them a major league thumping!

  4. TwilightZoned

    “And yet Mr. Obama insists he is not to blame.”

    Hummm…Seems to me O make these campaign promises: 1. Everything would be out in the open, even being posted on a special website for 5 days for Americans to review. 2. He would go through bills/budget line-by-line to look for wasteful spending, etc.

    Since both promises were broken it DOES make YOU, Mr. President, responsible. A REAL grown-up understands the phrase “the buck stops here.” Grow up!

  5. Celina

    I guess this is what happens when you sign something before you actually read it? Under the best of circumstances that is probably what happened. Honestly, he had to have known this was coming. I am amazed at how many of his acolytes still think the man craps sweet basil.

  6. canary

    I’m a bit confused. Obama didn’t want any of the bonuses to be taxed? I thought an employer takes an automatic 1/3 out of bonuses given (meaning the employee doesn’t get the full amount) , and then the individual put’s in the amount allready taken out, as a deduction, to see if they can get more of the deduction back, that was already done.
    Well, one thing I’m not confused about is a President making a terrorist joke about AIG committing suicide. What happened to good ole Lawyers and Preacher jokes.

    Lawyer joke.
    The Truck Driver and the Priest

    A truck driver amused himself by running over lawyers as they walked down the side of the road. Every time he saw a lawyer walking along the road, he would swerve to hit him. There would be a loud “thud”, and then he would swerve back on the road.

    As the truck driver drove along one day, he saw a priest hitch hiking, he pulled over and asked the priest, “Where are you going, Father?”

    The priest said he was on his way to his church up the road.

    “I’ll give you a lift”

    The priest climbed into the passenger seat and the truck driver continued down the road. Suddenly, the truck driver saw a lawyer walking down the road and instinctively swerved to hit him. At the last minute, he remembered he had a priest in the truck and swerved back onto the road. Even though he knew he missed the lawyer, he still heard a loud “thud.” Unsure of where the noise came from, he glanced in his mirrors. When he didn’t see anything, he turned to the priest and said, “I’m sorry, Father. I almost hit a lawyer.”

    The priest replied, “That’s OK, I got him with the door.”

  7. polemos

    Wyden is my senator. Nice safe seat here in liberal left coast.


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