The New York Timesand Washington Postlead with the House of Representatives passing a bill that would impose a huge tax on bonuses awarded by firms that receive large amounts of government aid. Republicans raised some objections during debate, but the vote wasn’t even close, as the measure was approved 328-93. The bill would impose a 90 percent tax on bonuses awarded to employees with a household income of more than $250,000 by any company that received at least $5 billion from the government’s financial rescue package. Wall Street insiders immediately complained that the measure could undermine the government’s efforts to rescue the financial system because firms would be less willing to participate.
The Los Angeles Timesleads with a look at how President Obama’s budget faces “a rocky road” in the congressional debate that is set to formally start next week. On top of a slew of recent developments, the chairman of the Senate budget committee said the deficits could be $1.6 trillion higher over the next 10 years than what the Obama administration had calculated, partly because of the worsening economic climate. The Congressional Budget Office is expected to reveal similar numbers today. The budget debate will “force Congress, for the first time this session, to make tough choices between competing priorities,” notes the LAT. USA Todayleads with figures that reveal there’s an 11.2 percent jobless rate among veterans who served in Iraq and Afghanistan, a significantly higher number than the 8.8 percent rate among nonveterans. The poor job market might be encouraging some service members to re-enlist. The Wall Street Journalleads its world-wide newsbox with Obama’s video message to Iran’s government and its people that encouraged them to create a new relationship with the United States (watch it here). The message was set to coincide with the Persian holiday of Nowruz, and the president said the celebrations could mark a “new day” in bilateral relations between the two countries.
House lawmakers were clearly reacting to the public outrage over the $165 million handed out by American International Group last week, but the bill passed yesterday would end up affecting “tens of thousands” (WP) of employees at some of the country’s largest financial firms. The NYT says 11 institutions would be affected, and the WP and WSJ point out that mortgage giants Fannie Mae and Freddie Mac would also fall into that group. Many employees at these firms were sent “into a panic” ( NYT) yesterday, particularly because the measure would be retroactive to Dec. 31, 2008, which means that some could be expected to pay back money they’ve already spent. The Senate is set to take up a similar measure next week, which would be less punitive but broader. The Senate bill would impose a 70 percent tax on bonuses, which would be split between the company and the employee, awarded by any firm that received more than $100 million in federal assistance.
Financial institutions immediately complained that Washington lawmakers are punishing them for someone else’s sins and warned that this could ultimately undermine the government’s efforts to rescue the financial system. The fear is not only that banks would want to give back the money they received, thus slowing down efforts to thaw the credit markets, but it might also scare some firms from participating in future rescue efforts out of fear that the government could later slap on restrictions to their compensation. Many are already wary of participating, and the WSJ notes that more than 200 banks have withdrawn their applications to participate in the voluntary program that seeks to inject $250 billion into ailing banks.
In a separate front-page piece, the WP reports that some bank executives are saying the bill would force them to choose between keeping the government money and losing key employees or giving back the money, which would delay any form of economic recovery. There are also worries that the legislation would give an advantage to foreign banks since it targets bonuses paid by U.S. companies. The WSJ hears word from an executive of a large American financial firm that headhunters representing foreign banks have already been calling up employees.
Lawmakers in Washington were in no mood to hear complaints from the financial sector, particularly since, as the LAT highlights, “the infuriating news just kept coming.” One lawmaker revealed that 13 companies that received government aid had failed to pay more than $220 million in taxes, and Bloomberg reported that Citigroup plans to spend $10 million for new executive offices. And that’s without considering the outrage that has been building this week over the revelation that Fannie Mae is set to hand out its own retention bonuses. For his part, Obama, in a tactic that has become increasingly common, took on the role of spectator and didn’t really state whether he is in favor of these efforts. At first he seemed to endorse the legislation but then tracked back, saying that while he understands “everybody’s anger … the best way to handle this is to make sure that you close the door before the horse gets out of the barn.”
Obama made that statement on The Tonight Show With Jay Leno, when he became the first sitting president to appear on late-night television. On the show, Obama “walked a tightrope between projecting good humor and projecting a presidential air,” notes the NYT. He talked seriously about the economy, but also made some jokes (“In Washington, it’s a little like American Idol, except everybody is Simon Cowell”), talked about his bowling game (“It was like the Special Olympics or something,” Obama said in the one statement that could create controversy), and the family dog.
The WSJ fronts a look at how credit-rating companies, which have been heavily criticized for their role in sparking the financial crisis, could make a nice chunk of change from the government’s efforts to prop up the credit markets. The credit-rating agencies have come under fire because of their overly positive projections on mortgage-backed securities, but the government is going to rely on their judgment since it will allow its money to be used only to buy securities with a triple-A rating. “If the ratings companies are wrong this time around, the Federal Reserve and the Treasury—and therefore taxpayers—will be on the hook for some losses,” notes the WSJ. If all goes as planned, the credit-rating companies could make anywhere from $400 million to $1.2 billion.
The LAT and NYT front, and everyone reports, that the Israeli military ordered a special investigation into accounts by officers that troops had little concern for civilian life and private property during the Gaza war. The accounts that were published in a military institute’s newsletter and Israeli newspapers “resembled accounts given by many Palestinians” and “appeared to support contentions by some human rights groups that Israel had violated the laws of war,” notes the LAT. The accounts sparked a huge controversy in Israel since it marked the first time that anyone within the Israeli military contradicted the much-repeated mantra that Israeli troops were careful to avoid civilian casualties throughout the conflict.
All the papers note that First Lady Michelle Obama will break ground today on a vegetable garden that will grow in a section of the South Lawn of the White House. The 1,100-square-foot plot will contain 55 varieties of vegetables, all grown organically, of course. There will even be two beehives. The food will be served to the president’s family as well as during official events, but the first lady said its most important function will be to educate children about the benefits of healthy, locally grown products. The Clintons had a small rooftop garden, but this will mark the first large vegetable patch on White House grounds since Eleanor Roosevelt tended to a victory garden during World War II. Many have been campaigning for the garden and were elated by the news. “Nothing could be more exciting,” said Alice Waters, a celebrity chef who has been lobbying for it since the Clinton administration.
The WSJ reports on the latest craze among today’s troubled youth: “smoking Smarties.” Kids figured out that if you crush the tart candy and pour it in your mouth you can blow out a fine dust that looks an awful lot like smoke from a cigarette. (Confused? Check out this video.) Although “other candies have endured misuses” through the years, “few have involved such obvious mimicry of lethal adult vices,” reports the WSJ. Parents are freaking out and some schools have even banned the candy. One parent likened “smoking Smarties” to a gateway drug that could lead “to smoking cigarettes or pot or anything else like that.”