A top Senate Democrat said Tuesday that he is urging AIG's top executive to tell employees who received millions in bonuses to return the money -- or Congress will "tax virtually all of it."
Congress is looking at ways to deal with the outrage surrounding AIG's controversial bonuses.
"My colleagues and I are sending a letter to [AIG CEO Edward] Liddy informing him that he can go right ahead and tell the employees that are scheduled to get bonuses that they should voluntarily return them," Sen. Charles Schumer said on the Senate floor. "He should tell the employees if they don't get the money back, we will put in place a new law that will allow us to tax the bonuses at a very high rate so it is returned to its rightful owners, the taxpayers."
Schumer, D-New York, added: "I rise to assure you, to assure the leadership of AIG, and to assure my fellow Americans and my colleagues that we intend to do everything in our power to prevent those payments from being made and to recoup the money that has already been paid."
Schumer's comments came the same day New York Attorney General Andrew Cuomo confirmed in a letter to Congress that AIG paid 73 employees bonuses of more than $1 million each.
Cuomo also wrote that 11 of the employees no longer work for the company. The largest bonus paid was $6.4 million; seven more people received more than $4 million each.
"Until we obtain the names of these individuals, it is impossible to determine when and why they left the firm and how it is that they received these payments," Cuomo wrote to a congressional committee.
AIG has been under fire for awarding seven-figure bonuses to employees while being kept afloat by more than $170 billion from the U.S. government's financial bailout.
The company insists the payouts are needed to keep talented executives on the payroll, but public anger over the moves has prompted Congress and the Obama administration to seek some ways to reclaim the money.
Senate Democrats, meanwhile, want to tax the controversial bonuses doled out to AIG employees who work for the division that led to the company's downfall.
Senate Majority Leader Harry Reid announced on the Senate floor Tuesday that the tax-writing Senate Finance Committee will pursue a legislative fix in such a way that the "recipients of those bonuses will not be able to keep all their money -- and that's an understatement."
Senate Finance Committee Chairman Max Baucus, D-Montana, will propose a special tax within the next 24 hours, Reid said.
"I don't think those bonuses should be paid," Baucus said Tuesday.
The special-tax idea was first floated Monday by Sen. Chris Dodd, chairman of the Committee on Banking, Housing and Urban Affairs.
"We have a right to tax," the Connecticut Democrat told CNN. "You could write a tax provision that's narrowly crafted only to the people receiving bonuses
At an unrelated hearing Tuesday at which IRS Commissioner Douglas Shulman was testifying, Baucus asked the nation's top tax official, "What's the highest excise tax we can impose that's sustainable in court?"
Shulman did not respond directly, but Sen. Bill Nelson, D-Florida, chimed in to suggest the tax could be as high as "90 percent."
President Obama on Monday expressed dismay and anger over the bonuses to executives at AIG.
Reality Check: Income
How much less Americans were paid in monthly private wages and salaries in January
Number of polled Americans who believe it's possible during this recession to improve their economic standing
Number of polled chief financial officers who plan to freeze or reduce wages in the next year
Sources: Department of Commerce, Pew Research Center, Duke University/CFO Magazine
"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama told politicians and reporters in the Roosevelt Room of the White House, where he and Treasury Secretary Tim Geithner were unveiling a package to aid the nation's small businesses.
Obama said he will attempt to block bonuses for AIG, payments he described as an "outrage."
"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?"
Obama was referring to the bonuses paid to traders in AIG's financial products division, the tiny group of people who crafted complicated deals that contributed to the shaking of the world's economic foundations.
The president said he has asked Geithner to "pursue every single legal avenue to block these bonuses and make the American taxpayers whole."
Obama spared Liddy from criticism, saying he got the job "after the contracts that led to these bonuses were agreed to last year."
But he said the impropriety of the bonuses goes beyond economics. "It's about our fundamental values," he said
"All across the country, there are people who are working hard and meeting their responsibilities every single day, without the benefit of government bailouts or multimillion-dollar bonuses. You've got a bunch of small-business people here who are struggling just to keep their credit line open," Obama said.
"And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. That is an ethic that we have to demand." iReport.com: Sound off on AIG
Obama said he would work with Congress to change the laws so that such a situation cannot happen again.
Then, coughing, he added in jest, "I'm choked up with anger here."
Republican Sen. Charles Grassley of Iowa didn't appear to be joking, however, when he spoke with Cedar Rapids, Iowa, radio station WMT.
"I would suggest the first thing that would make me feel a little better toward them [AIG executives] is if they follow the Japanese example and come before the American people and take that deep bow and say, 'I am sorry,' and then either do one of two things: resign or go commit suicide," he said.
"And in the case of the Japanese, they usually commit suicide."
Under pressure from the Treasury, AIG scaled back the bonus plans and pledged to reduce 2009 bonuses -- or "retention payments" -- by at least 30 percent. That has done little to temper outrage over the initial plan, however.
In the House, Democrats are trying to shame AIG executives into forgoing the bonuses. They're also investigating possible legal avenues Congress can take to force the company to return money used for bonuses, a House Democratic leadership aide and a House Financial Services Committee aide said Monday.
The committee is trying to determine whether Congress can force AIG to renegotiate the bonuses, which the company says it is legally required to give employees under contracts negotiated before the company received its first infusion of bailout dollars in September, according to the committee aide. Who's insured by AIG? »
Both aides said it is unclear what authority Congress might have to force AIG to take back the bonuses.
Liddy will face intense questioning about the bonuses when he testifies Wednesday before the House Financial Services subcommittee on capital markets.