To Recover AIG Bonuses, Lawmakers Scramble to Undo Protections They Approved

Congressional lawmakers are scrambling to think up creative ways to recover at least some of the $165 million in bonuses that bailed-out American International Group is paying executives -- but they could be their own worst enemy.

Though Sen. Chris Dodd, D-Conn., is among those leading the charge on retrieving the bonuses, an amendment he added to the $787 billion stimulus bill last month created a roadblock to getting that money back.

The amendment, meant to restrict executive pay for bailed-out banks, also included an exception for "contractually obligated bonuses agreed on or before Feb. 11, 2009."

This would seem to exempt the AIG bonuses that lawmakers and President Obama are looking to recover. Incidentally, Dodd is the largest single recipient of 2008 campaign donations from AIG, with $103,100, according to the Center for Responsive Politics.

The Dodd amendment creates a "prohibition on what the president is now talking about," said Virginia Rep. Eric Cantor, the House minority whip. He also accused the administration of being in "disarray."

However, Dodd told FOX News late Tuesday that the exemption was not part of his original amendment and was only added during negotiations after the fact.

"When the language went to the conference and came back, there was different language," he said.

"I can tell you this much, when my language left the Senate, it did not include it," he said, referring to the exemption. "When it came back, it did."

But the so-called Dodd amendment wasn't the only missed opportunity to deal with executive bonuses. In addition, lawmakers dropped an amendment during negotiations on the stimulus last month that would have mandated companies paying bonuses over $100,000 face either a 35 percent excise tax on the money or return the cash. The amendment was drafted by Sen. Olympia Snowe, R-Maine, and Sen. Ron Wyden, D-Ore.

Snowe's staff estimates this would have recovered about $58 million from AIG -- an aide could not say why the provision was dropped last month. (Szostak said Dodd supported that amendment.)

Now Senate and House lawmakers have returned to the idea of imposing heavy taxes to recover the bonus money.

Ten House Democrats introduced a bill Tuesday to tax all bonuses above $100,000 at 100 percent to recoup all the "outrageous" AIG bonuses.

Senate Majority Leader Harry Reid also vowed to recover a sizeable chunk of the money.

"Remember, we, as a Congress, are not defenseless. We can also do things," the Nevada Democrat said Tuesday, announcing he has tasked Senate Finance Committee Chairman Max Baucus, D-Mont., with crafting a proposal to recover the bonuses.

He said the legislation would be proposed by Wednesday and subject the bonuses to a tax of more than 90 percent. He also said lawmakers would soon work with the administration to complete a Wall Street accountability bill.

Baucus is seeking to find out exactly who received bonuses and, if some are not U.S. citizens, whether Congress can construct a law to tax the bonuses of the foreign nationals.

"If (AIG CEO Edward) Liddy does nothing, we will act and will take this money back and return it to its rightful owners, the American taxpayers. We will take this money back by taxing virtually all of it," Sen. Chuck Schumer, D-N.Y., said Tuesday. "So let the recipients of these large and unseemly bonuses, be warned. If you don't return it on your own, we will do it for you."

Dodd pushed the idea of taxing the bonuses Monday night. But on Tuesday, while he said lawmakers would continue to pursue this avenue, he added: "I don't know whether or not as a practical matter it will produce the kind of results we're looking for. We're all searching for a way to get this money back and one way or another we're going to figure out how to do it."

House Majority Leader Steny Hoyer, D-Md., expressed skepticism about a potential legislative remedy to claw back the bonuses.

"There is some question legally if we can affect these bonuses," Hoyer said. He indicated that he would prefer if AIG would decide on its own to return the money.

Hoyer borrowed a line from attorney Joseph Welch who chastised Sen. Joseph McCarthy during a famous exchange at a 1954 Senate hearing.

"Have they no shame or responsibility to the taxpayer?" Hoyer asked. "Have they no sense of decency?"

FOX News also has learned that Rep. John Conyers, D-Mich., the chairman of the House Judiciary Committee, is introducing a separate bill Wednesday that would give the Justice and Treasury departments the ability to ask courts to "undo" bonus contracts for firms that received bailout funds -- in the same way bankruptcy courts overhaul contracts for companies facing bankruptcy.

FOX News' Trish Turner and Chad Pergram and FOX Business Network's Rich Edson contributed to this report.