Rep. Brad Sherman (D-CA), a senior member of the House Financial Services Committee, just pointed out the potential for loopholes to be opened in the AIG-inspired bonus taxation bill that his party is about to push to passage today.
Sherman, who warned TPMDC early on that executive-pay limits in the stimulus bill would be watered down, called today’s bonus taxation bill “a step in the right direction” — but noted that it would allow companies to still pay lavish bonuses while merely changing the terminology used to describe them.
But the most nagging question Sherman raised in his statement this afternoon relates to language in the Democratic bill that limits any bonus taxation to firms getting “capital infusions under the Emergency Economic Stabilization Act of 2008.” Sherman interprets this language as applying to the preferred-stock purchases that were authorized under that law, which provided the first round of bailout funds nearly six months ago.
So would today’s AIG-inspired bill apply to Citigroup, which last month converted its preferred stock to common stock and a “trust preferred security” with the government’s blessing? And if 18 other banks follow Citigroup’s lead by trading in their preferred stock — they’re all eligible to do so, as Federal Reserve Chairman Ben Bernanke said last month — would that exempt those banks from today’s bill as well?
Given the vaunted skill of internal counsels in the financial industry, one suspects they’re working on making that potential loophole larger. You can read Sherman’s full statement after the jump.
The tax bill coming before the House of Representatives today is a step in the right direction. It imposes a 90% tax on bonuses paid to executives of the big bailed-out financial institutions.
While the bill focuses on bonuses, it does not affect million-dollar-a-month salaries. In fact, a bailed-out bank which might otherwise pay an outrageous bonus, is free to raise an executive’s salary to $2 million a month. Not a penny of that $2 million a month would be taxed or restricted by this bill.
The bill also allows unlimited commissions, without defining the word commissions. If Wall Street firms can rename their “bonuses” and call them “commissions,” they may escape the bill entirely.
The bill applies to those financial institutions that have received over $5 billion in return for their preferred stock. The Treasury is now planning to spend hundreds of billions of dollars buying toxic assets from financial institutions. A financial institution’s executives are not affected by the bill merely because the institution sells tens of billions of dollars of toxic assets to the Treasury.
I will be introducing a bill either Friday or Monday which imposes a substantial tax on all excess compensation (over $500,000) paid to executives of all the big bailed-out firms. It will deal with salaries, bonuses, retention payments, commissions, employee-of-the-week prizes, and all other manners of compensation.
