Road Map: Senate Downshifts in Response to AIG Bonus Flap

Posted March 23, 2009 at 6:31pm

Shooting from the hip has rarely worked out well for Congress, but it looks like the Senate may actually be placing a trigger lock on Capitol Hill’s effort to recover millions in taxpayer-funded bonuses at American International Group.

[IMGCAP(1)]Last week, Congressional outrage succeeded in getting the House to pass a bill to tax the $165 million in AIG bonuses at 90 percent, and the Senate tried to pass its own measure to punitively tax both AIG and the beneficiaries of those multimillion-dollar bonuses.

But it seems that over the weekend, cooler heads started to prevail, and even Senate Majority Leader Harry Reid (D-Nev.) —who excoriated Republicans last week for blocking his chamber’s bill — is taking a step back.

After promising to bring up the bonus tax bill again this week, Reid seemed to indicate Monday that the measure is low on his priority list, and he was lukewarm in his pledge to continue to pursue its passage.

“Despite last week’s Republican objection to passing … the AIG bonus bill, we’ll continue to work to right this egregious misuse of taxpayer dollars,— Reid said on the Senate floor. “Republicans have asked for more time to study the legislation, and they’re entitled to that. With Republican cooperation, we can quickly and responsibly return these funds to the American people.—

Democratic aides said Senate leaders are negotiating whether to hold a full debate on the bill this week or to simply give it a passing mention in between action on a measure to boost “national service— programs and votes on Obama administration nominees.

The first option would likely require Reid to use time-consuming procedural maneuvers to overcome GOP objections to the measure and a vigorous, and perhaps lengthy, debate. The second option would likely be a meek attempt to pass the bill without debate, a scenario Republicans would likely object to, as they did last week. After that, the bonus bill would likely lie dormant next week while the chamber debates the 2010 budget resolution and then heads out of town for the two-week, Easter recess.

Reid spokesman Jim Manley acknowledged that the Majority Leader is tapping the brakes on the issue.

“In light of the concerns being raised by the White House along with the concerns of both Republicans and Democrats here in the Senate, we’re going to need to take a bit of time and sort all of this out,— Manley said. “We’re going to pass a national service bill, so we have a few days to sort all of this out.—

Democrats are likely to discuss their options during the weekly policy lunch today, and the topic could come up again Wednesday when President Barack Obama graces them with his presence at another special lunch on the budget blueprint.

Key Democrats, including Obama, his key advisers and some Senators, put a damper on the rage against AIG over the weekend. In particular, the Democrats voiced their concern that using the tax code as a weapon against Wall Street bailout beneficiaries might not be such a great idea while the administration also tries to convince banks and financial firms to save themselves — and the rest of the economy — with government help.

So, maybe the Senate is finally learning its lesson from botched policy initiatives that were rushed to enactment during recent national emergencies, real or perceived. Take, for example, the post-9/11 USA PATRIOT Act, which Members of both parties found went too far in curbing civil liberties; the vaguely worded 2002 Iraq War resolution that seemed to allow the Bush administration to enter into the now six-year-long war; and, of course, the 2008 Wall Street bailout, which still isn’t working out the way lawmakers had envisioned.

Or maybe Senate Democrats are just afraid of getting burned again by the Obama administration, which convinced Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) and other Congressional leaders to scale back a proposal that would have limited the amount of money AIG and other bailout recipients could dole out in retention bonuses.

Indeed, Senate Democrats said they want Obama to own his opposition to or support for the bonus tax bill, rather than saddling them with a potential Dodd-like drubbing for either pressing forward on a measure many consider bad policy or for abandoning a populist solution to a political problem.

But if they are looking for a formal announcement of Obama’s plans for either the House or Senate bill, they probably won’t get one.

Office of Management and Budget spokesman Tom Gavin said the administration currently has no plans to issue a Statement of Administration Policy on either measure.

A White House spokeswoman pointed to Obama’s statements on CBS’s “60 Minutes— this weekend, in which the president said he worried the Congressional efforts to recover AIG bonuses might be unconstitutional.

In an unaired transcript of the entire interview that was provided by the White House, Obama indicated that his reservations go even deeper than constitutional issues.

“I do think that the most important thing is to make sure that instead of worrying about how to get the horse back in the barn after the door has been open for a long time, how do we make sure that we are going to keep that door closed the next time,— Obama said. “So there are a lot of decisions that we’re going to have to make and we’ve got to make sure that we’re making them based not on just anger but also what’s going to be required to make sure that credit flows again.—

The president also said that companies such as AIG and mortgage giants Fannie Mae and Freddie Mac, “which, again, wouldn’t exist if it weren’t for the federal government stepping in,— should be treated differently from community banks who took small amounts of federal bailout money because of the larger collapse in the housing market.

Of course, those comments fall short of what Congressional Democrats want to hear, which is whether Obama will sign either the House or Senate measure and, if not, what his solution is.