Vice President Joe Biden's economic adviser said Sunday that lawmakers' plan to tax back insurance giant American International Group, AIG, bonuses may have "gone too far."
"I think the president would be concerned that this bill may go too far -- the House bill -- may go too far in terms of some legal issue: constitutional validity, using the tax code to surgically punish a small group of people. That may be a dangerous way to go," Bernstein told me in an exclusive debate on "This Week" Sunday. "That said, let's see what comes out of the Senate. He has not said he won't sign this bill. Let's see what comes out of the Senate. Let's see what gets to his desk."
We learned last week that AIG received billions in taxpayer dollars to keep its doors open but still paid employees the bonuses their contracts required. Populist anger led the House to impose a 90 percent tax on bonuses paid this year on companies that received bailout money.
When the excise tax initially passed the House this week, President Barack Obama appeared supportive, putting out a statement saying it rightly reflects the outrage that many people feel. Yet all weekend long, it appears the White House has been backing away from that position, with White House Chief of Staff Rahm Emanuel assuring the finanical community that the bill is not going to reach the president's desk.
"You really have to differentiate between what you can legally do about bonuses moving forward and about clawing back old bonuses," Bernstein said Sunday. "Clawing back old bonuses really does invoke constitutional issues. But as the president said, we are going to pursue, and I know the Congress feels the same way, any means -- any legal means -- necessary to do so."
Bernstein suggested the House bill could scare off private investors the government needs now to come in to help buy up toxic assets as part of it's bank plan -- to be rolled out this week.
"This is a really important point. This kind of clawback legislation has to balance between the need to address the absolutely reasonable and well-justified anger of the Congress and the American people about how this money is being spent and these undeserved bonuses, and the need to pursue financial stability," Bernstein said. "What happened at AIG vis-à-vis these bonuses is a symptom of a much larger problem and we cannot lose sight of the much larger problem which is stabilizing financial markets."
Republican Sen. Susan Collins of Maine, a key member of the Senate Appropriations Committee, agreed the House and Senate bills may not be appropriate.
Collins and Democratic Sen. Kent Conrad of North Dakota, chair of the Senate Budget Committee, argued the Treasury Secretary should "put more heat on AIG."
"As angry as I am, I agree with my colleague that we need to be careful," she said. "And the problem with the Senate bill is it is so wide in its scope that it would apply to tens of thousands of employees all across this country who had nothing to do with getting us in this mess. I'm not against getting the money back. In fact, I feel very strongly that we do need to recoup the money. I'm just not certain that either the House-passed bill nor the Senate bill are the best approach. We need to look for an alternative means of recouping this money that doesn't cause further harm to our economy as we're trying to get banks lending."
"He never should have allowed this to occur in the first place," Collins said of Treasury Secretary Tim Geithner. "We can make sure that there is pressure for people to voluntarily get the money back or else they're going to lose their jobs or there's going to be no further funding for AIG."
Republican Rep. Mike Pence of Indiana said, "The answer here is to focus on AIG. What House Republicans proposed was that we ought to say to AIG, 'No more bailout money until you go and collect back 100 percent of the bonuses that you've distributed."
"We own 80 percent of AIG. I didn't support the Wall Street bailout, still don't. But we essentially nationalized AIG. And all these legal niceties notwithstanding, you know, it's -- quite frankly, it's anti- competitive and anti-free market for the Congress of the United States to be passing legislation that targets, or to use Charlie Rangel's statement earlier in the week, that uses the internal revenue code as a political weapon," he said.
Conrad argued Geithner should put pressure on AIG to force their employees to give the bonuses back, or be fired.
"Look, to me, unfortunately, the cat's out of the barn, the horse is out of the barn. You've already put up $170 billion. So, you know, frankly, I would take a different tack. I would call the head of AIG to the Treasury and I would say to him, 'Look, you call in those employees and you tell them they give back the money or they're out of a job.' And the head of AIG has absolutely got that authority. He's the head of the company."
"They would not have jobs were it not for taxpayer money going into AIG," Collins agreed.