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Insurance industry

Obama Administration and Congress Target AIG Bonuses Amid Public Outrage

Strategic Insights

— 2 min read

The Obama administration and Congress are intensifying their efforts to claw back bonuses given to traders at American International Group Inc. (AIG), the beneficiary of $170 billion in taxpayer bailout funds. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid are pushing for new tax bills with confiscatory rates to reclaim virtually all of the $165 million in bonuses paid to AIG executives. Meanwhile, the Internal Revenue Service (IRS) has issued two rulings to soften the losses for victims of Ponzi scheme mastermind Bernard Madoff, allowing them to claim investment theft losses on their tax returns and deduct up to 95% of the accumulated loss in the year of discovery.

Key Takeaways:

  • The Obama administration and Congress are rapidly drafting legislation to confiscate AIG bonuses, with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid pushing for new tax bills with rates as high as 90% or 91% on the bonus money.
  • Senator Amy Klobuchar (D-MN) has signed a letter supporting an excise tax as high as 91% on AIG bonuses if the firm does not address the issue.
  • IRS Commissioner Douglas Shulman has issued two rulings to soften the losses for Ponzi scheme victims, allowing them to claim investment theft losses on their tax returns and deduct up to 95% of the accumulated loss in the year of discovery.
  • The IRS rulings apply to victims of all Ponzi schemes, including the one perpetrated by Bernard Madoff, which had $64 billion in losses.
  • Democratic lawmakers have introduced bills to extend the grace period for defrauded investors to claim refunds on taxes paid of phony income for up to a decade.
  • AIG's bonuses have been widely criticized, with Senator Charles Grassley saying it's "irresponsible for corporations to give bonuses at this time, when they're sucking at the teat of the taxpayer."

Statistics:

  • $170 billion in taxpayer bailout funds given to AIG
  • $165 million in bonuses paid to AIG executives
  • $64 billion in losses from Madoff's Ponzi scheme
  • 4,800 listed investors affected by Madoff's scheme
  • $500,000 in potential recovery for victims of Madoff's scheme through the Securities Investor Protection Corp.
  • 8% of Americans are unemployed, with many turning to job fairs to get back into the workforce

Sources:

  • THE WASHINGTON TIMES, "Congress Urges Obama to Use Tax Code to Claw Back AIG Bonuses"
  • INTERNAL REVENUE SERVICE, "Tax Rulings Help Ponzi Scheme Victims"
  • ASTRID RIECKEN, THE WASHINGTON TIMES, "POINTING FINGERS: Sens. Charles E. Schumer (left) and John Kerry attend a Senate Finance Committee hearing at which Democrats considered steep tax penalties on bonuses given to executives of American International Group Inc."
  • GETTY IMAGES, "SIGN OF THE TIMES: Up to 10,000 people attend a job fair Tuesday at FedEx Field in Landover."
  • ASTRID RIECKEN, THE WASHINGTON TIMES, "From my standpoint, it's irresponsible for corporations to give bonuses at this time, when they're sucking at the teat of the taxpayer, Sen. Charles E. Grassley said."

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