Public Outrage over AIG Bonuses Spurs Congress to Tax Executive Payouts

Rep. Steve Israel (D – NY) has introduced new legislation to tax TARP-taking company big bonuses, like those to be distributed to AIG executives, at 100%

The Bailout Bonus Tax Bracket Act of 2009 would recoup any bonuses over $100,000 paid to employees of firms that received aid through Treasury’s Troubled Assets Relief Program, also known as TARP.

Currently, the IRS withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million dollars. The Bailout Bonus Tax Bracket Act of 2009, would tax bonuses over $100,000 disbursed to employees of companies receiving TARP funds.

Because bonuses are treated as taxable income, this bill applies a separate “Bonus Bailout” rate to the TARP bonus. Bonuses would be taxed beginning with those disbursed this year.

For example, if an AIG employee’s taxable income is $750,000 which includes the $150,000 AIG bonus received this year, that employee will pay the top marginal rate on $500,000 of personal income, and then the “Bonus Bailout” tax rate of 100% on the $150,000 TARP bonus.

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