Updated from 11:07 a.m. EDTThe U.S. House of Representatives voted Thursday to impose a 90% tax on bonuses paid out by companies receiving more than $5 billion in bailout money, a quick response to the American International Group ( AIG) bonus controversy. The bill, which passed by a vote of 328-93, installs a 90% tax that applies to workers who earn $250,000 or more for their salary, including bonuses. Bonus payments made after Dec. 31 are subject to the tax, although it would end after the U.S. government's investment in the company fell below $5 billion. The tax does not apply to any bonus returned to a company. House Democrats unveiled the bill as AIG CEO Edward Liddy testified on Capitol Hill on Wednesday about the $165 million his company paid out in bonuses to 4,600 employees, including about 400 workers from the financial products unit. That division is blamed for bringing the insurer to the brink of collapse, before the government orchestrated a federal bailout that now totals $173 billion. During his testimony on Tuesday, Liddy said that he had asked employees who have received retention payments in excess of $100,000 or more to return at least half of those payments. Liddy stated that some workers had already returned 100% of their bonus. Charles Rangel (D., N.Y.), chairman of the House Ways and Means Committee, said that a 90% tax is the ideal figure to levy on institutions receiving bailout money. "We figured that the local and state governments would take care of the other 10%," he said.
Rangel said the tax bill applies to mortgage giants Fannie Mae ( FNM) and Freddie Mac ( FRE) -- which also are offering retention bonuses of between $470,000 and $611,000, The Wall Street Journal reported Thursday -- as well as financial companies like Citigroup ( C) and others that have received government assistance. It would exclude community banks and other smaller companies that have received less bailout funding. The backlash against the AIG bonuses came immediately after word of the $165 million payments leaked. Service Employees International Union President Andy Stern called the bonus scandal at AIG "the last straw." "Americans have simply had it with an economy that keeps delivering for top executives while leaving working people falling behind," Stern said. Stern said that more than 10,000 Americans were set to participate Thursday in demonstrations across the country at the offices of AIG, Bank of America ( BAC), Citigroup, and other major banks to vent their anger over an era of corporate excess. Even President Barack Obama offered harsh words on the AIG bonus scandal and the regulation oversights that exacerbating the mess. "The buck stops with me," Obama said.