Obama on back foot as representatives vote to tax bonuses amid AIG row

House passes emergency legislation to impose 90% tax on executive bonuses paid with bail-out funds
Michael Tomasky considers the implications of a heavy tax on AIG bonuses Link to video: Tomasky Talk: A popular tax increase

Congress today voted by an overwhelming majority to claw back executive bonuses amid mounting frustration at the apparent impotence of the Obama administration to deal with the scandal.

In the face of public outrage at bonuses paid last week to executives of the bailed-out insurance giant AIG, the House of Representatives passed an emergency measure to impose 90% tax on the cash handouts, which total around $165m (£114m). It passed by 328 votes to 93.

In a parallel with the row in Britain over payouts to bankers, the bonuses have become the focal point for simmering discontent in the US over the billions being paid out to bail out struggling banks and financial institutions.

Television bulletins have been dominated all week by the public backlash against AIG, which lost $100bn last year and has received $170bn in federal aid to keep it afloat.

In a new development, AIG today handed over the names of employees who had received bonuses. The New York attorney-general, Andrew Cuomo, who had issued a subpoena demanding the names, is planning to make them public.

His office said: "We are aware of the security concerns of AIG employees, and we will be sensitive to those issues by doing a risk assessment before releasing any individual's name."

Congress is pointing the finger of blame at the White House for failing to take measures to prevent huge bonuses being paid to executives of institutions being bailed out.

The treasury secretary, Tim Geithner, tonight insisted he was not planning to resign and said calls for him to quit or be sacked were just part of the job.

But he added to pressure on himself by admitting that the treasury had been behind a controversial loophole introduced into legislation six weeks ago to allow AIG executives to keep their bonuses. He said the treasury had been concerned it would face lawsuits if the bonuses were not paid out.

Obama, who was on the second day of a visit to California, has three times this week been forced to come to the defence of Geithner.

Republicans today called on Geithner to go. The Republican senator, Jim Bunning, told a Fox channel he should either resign or be fired because he has an "incestuous relationship with Wall Street".

Earlier, Connie Mack, a Republican congressman, said: "I've had serious concerns about Secretary Geithner from the moment he was nominated. In the months since he has shown us time and again why he was the wrong choice."

While Obama is unlikely to sack Geithner only a few months into his presidency, the scandal has weakened the treasury secretary and threatens to make it harder for the Obama administration to push through ambitious plans for helping lift the US - and world - out of recession.

Today the House of Representatives passed the bill, drawn up on Tuesday, after congressional offices were flooded with calls from constituents expressing disgust with the bonuses. Democratic members stood up in the House one after another to express anger over the bonuses paid out to what one called the "barons of Wall Street" at a time when millions were struggling with unemployment.

Some Republicans voted against the bill, saying it was an empty political gesture, and that it would be impossible to get much of the money back because it had been paid to individuals overseas. The Republican leader in the House, John Boehner, described it as a sham.

Eighty-seven Republicans, joined by six Democrats, voted against.
But 85 Republicans voted alongside 243 Democrats for the measure, which needed a two-thirds majority.

The Senate is due to vote on a similar bill next week.

Most of the heat is on Geithner, with questions from Republicans, Democrats and the media about when he first knew about the bonuses. Geithner said he only heard about them for the first time on Tuesday of last week and informed Obama's senior advisers two days later.

Geithner told the White House that treasury lawyers had informed him that legally he could not stop the payouts. But by Monday, Obama, reflecting public opinion, began denouncing the bonuses and asking officials to look for a way to claw back the money.

One plan Geithner is looking at is to make the next tranche of bail-out money to AIG, about $30m, conditional on return of the bonuses.

Geithner has been in difficulty almost since Obama appointed him. Congressional approval of his nomination was thrown into doubt when it emerged he had failed to pay income tax. Having squeaked through that crisis, he faced criticism for public performances that failed to inspire confidence.

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