March 19 (Bloomberg) -- U.S. House Democratic leaders plan to vote today on a proposed 90 percent tax on executive bonus payments by companies receiving more than $5 billion in federal bailout funds.

The bill is a response to the national furor that erupted this week when it was learned that American International Group Inc. paid $165 million in bonuses to employees, including many in the financial products unit whose investments brought the company to the brink of bankruptcy.

“These people are getting away with murder,” Ways and Means Chairman Charles Rangel of New York said during floor debate. “They’re getting paid for the destruction they’ve caused to our communities.” The House plans to vote under a fast-track procedure requiring approval from two-thirds of those voting.

Companies covered by the legislation have received 75 percent of federal bailout funds, according to the House Ways and Means Committee.

House Republican Leader John Boehner of Ohio denounced the Democrats’ bill as a “sham” effort to recover the money and said, “We don’t want 90 percent of it back, we want all of it back.” He said Republicans offered an alternative requiring the Treasury secretary to devise a plan within two weeks to get all the bonus money back.

Repay Half

The bill was drafted yesterday as AIG Chief Executive Officer Edward Liddy told a House Financial Services subcommittee that he asked employees who got bonuses over $100,000 to repay half. AIG so far has received $173 billion in federal bailout funds.

The 90 percent tax would apply to people with overall income exceeding $250,000, including bonuses. The tax would apply to bonus payments made after Dec. 31, 2008, and it would cease when the U.S. government’s investment in the company fell below $5 billion. The tax wouldn’t apply to any bonus returned to a company.

“We just want to recover the taxpayers’ money for them,” said Democratic Representative Steve Israel of New York. Those who got the bonuses “are just going to have to tighten their belts just like the rest of America,” he said.

The legislation wouldn’t attempt to impose the tax on foreign employees of companies such as AIG, said Ways and Means Committee spokesman Matthew Beck. Many of AIG’s bonus recipients work in the London office of the credit-default swap unit.

Senate Proposal

The Senate is writing its own measure that would impose a 70 percent excise tax on the bonuses, split between the company and employee. That tax would be collected from foreign workers by making the company responsible for paying the employee’s 35 percent excise tax if the levy couldn’t be collected using normal withholding in place under existing tax treaties, according to a description released by the Senate Finance Committee.

The Senate has not yet set a date for taking up its version of the legislation.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, and Senator Chuck Grassley of Iowa, the panel’s ranking Republican, said they sent a letter asking Liddy to identify who got bonuses from AIG, how long they worked for the company and whether they are still employed by it. They also asked Liddy for legal opinions on the risk AIG faced of being sued if it hadn’t paid the bonuses.

Congress is acting after Treasury Secretary Timothy Geithner said in a letter to lawmakers that his department’s lawyers determined it would be “legally difficult” to prevent AIG from paying the bonuses because they were required by contracts.

No ‘License to Steal’

“We passed a recovery act, we did not pass a license to steal,” New York Representative Steve Israel, a Democrat, said at the news conference. “The middle class will no longer subsidize pay for failure.”

Asked how lawmakers reached the 90 percent figure, Rangel said, “We figure the local and state governments will take care of the other 10 percent.”

Liddy said in his congressional testimony yesterday that he never would have approved the compensation contracts, which were signed before he took over at AIG last year, and said he asked employees to “do the right thing” on their bonuses.

AIG also budgeted $57 million in “retention” pay for employees who will be dismissed, according to a March 2 filing to the Securities and Exchange Commission.

Bonuses Expected

The inspector general for the Troubled Asset Relief Program said today President George W. Bush’s administration expected that bonuses would be paid at AIG in its November agreement to provide bailout funds to the insurer.

The TARP contract between AIG and Treasury “specifically contemplated the payment of bonuses and retention payments to AIG employees, including AIG’s senior partners,” Neil Barofsky testified before a House Ways and Means oversight panel.

The political heat generated by the AIG bonuses indicates declining public and congressional support for shoring up beleaguered financial institutions with government funds and may make it tougher for President Barack Obama’s administration to win approval for future bailouts.

The bonus decision “may jeopardize our ability to get the majority of this Congress to support further largess, to provide funds, to prevent a recession, depression or meltdown,” Representative Paul Kanjorski, a Pennsylvania Democrat who heads the capital markets subcommittee, told Liddy at yesterday’s hearing.

Republicans have criticized Democrats for tacitly allowing AIG to pay the bonuses due to language in a $787 billion economic stimulus bill that became law last month. The law, in effect, allows bonus arrangements at companies receiving taxpayer bailouts as long as the bonuses were in place before Feb. 11.

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net; Christopher Stern in Washington at cstern3@bloomberg.net

Last Updated: March 19, 2009 13:37 EDT