In a swift move targeting embattled insurer American International Group, the Senate Finance Committee will drop legislation this week that would impose severe taxes on any bonus issued by a company that has received government bailout funds.

Finance Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) announced rough details of the proposal Tuesday evening after a day of fervor on Capitol Hill following news that AIG distributed some of the $165 million in funds earmarked for executive bonuses.

The committee’s plan, which is still being ironed out and could be introduced as soon as Wednesday, would tax bonuses issued after Jan. 1 by any company that has received government bailout funds, including AIG, Fannie Mae, Freddie Mac and Bear Stearns.

The plan would impose a maximum 35 percent excise tax on retention bonuses, and recipients would also have to pay a 35 percent excise tax, leaving those employees with only 30 percent of their rewards.

Additionally, the plan would tax non-retention bonuses exceeding $50,000 at the same rate.

A senior Finance Committee aide said Baucus met with House Ways and Means Chairman Charlie Rangel (D-N.Y.) about the proposal, although no companion bill in the House has been drafted.

Senior aides said the panel’s plan was “modeled in part— after a measure introduced by Sens. Olympia Snowe (R-Maine) and Ron Wyden (D-Ore.), which would force financial institutions that used government funds for bonuses to either return the funds or face an excise tax. The measure was included in the Senate-passed TARP bill, but was stripped out in committee.