House Passes Measure Imposing 90 Percent Tax on TARP Bonuses

The House overwhelming passed a measure, HR 1586, imposing a 90 percent tax on bonuses paid after December 31, 2008, by companies that have received over $5 billion in TARP funds. The tax would also apply to bonuses paid by entities affiliated with these companies. The legislation drew strong bi-partisan support, passing by a vote of 328-93. The Senate Finance Committee is readying similar legislation.

According to the bill’s sponsor Way and Means Committee Chair Charles Rangel, three-fourths of the TARP funds that have been spent went to companies that would be covered by this bill. This tax will not apply to any bonus that is returned to the company in the same taxable year that the bonus is paid. In addition, the bill would not affect taxpayers with adjusted gross income below $250,000 or employees of companies that have received $5 billion or less in TARP funds.

The draft defines a ‘‘TARP bonus’’ as the lesser of the aggregate disqualified bonus payments received from covered TARP recipients during such taxable year, or the excess of the adjusted gross income of the taxpayer for such taxable year, over $250,000. In turn, the bill defines the term ‘‘disqualified bonus payment’’ to mean any retention payment, incentive payment, or other bonus which is in addition to any amount payable to such individual for services performed.