Lawmakers seek taxes on pay for TARP receivers

Companies receiving taxpayer funds under the Troubled Asset Relief Program would be subject to major taxes on executive bonuses under a proposal unveiled Tuesday evening by Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking minority member Charles Grassley, R-Iowa. “Core principals” of the proposal are aimed at discouraging “excessive compensation” by companies that have received federal bailout funds, as well as recouping payments made to executives at those companies and American International Group Inc. of New York, which is under fire for $165 million in bonuses paid to its executives. A 35% excise tax would be charged on companies that made any retention bonuses or any other bonuses over $50,000. A 35% excise tax also would apply to individuals who received those bonuses. Regulatory safeguards would also be included in the proposed legislation that would prevent companies from characterizing bonus payments as salaries to avoid the taxes. The provisions would apply to all TARP recipients of government funds, as well as companies in which the government holds an equity interest, including Fannie Mae and Freddie Mac. The restrictions would apply to all bonuses earned or paid as of January and would continue until the companies paid back the TARP funds. There also would be a $1 million limit on non-qualified deferred compensation. A taxpayer could not defer more than $1 million in a 12-month period. That limit would be indexed for inflation. If the limit were violated, the deferred compensation, including deferred compensation and interest payments from previous years, would be subject to a 20% penalty. Interest and earnings on compensation deferred during the 12-month period would not be counted against the $1 million limit as long as the earnings were based on a market rate of return.