Administration: Changes May be Needed in 90-Percent Tax on AIG Bonuses

White House economic advisers said Sunday that President Obama won't "govern out of anger" despite calls for the heads of AIG executives who received bonuses, and acknowledged that using tax law to get back $165 million in government-funded bonuses may be "a dangerous way to go." 

Those officials said the economy will return to better days soon, but suggested the House-backed plan to tax American International Group Inc. executives' bonuses at a 90-percent rate may have to be modified in the Senate.

"I think the president would be concerned that this bill may have some problems in going too far -- the House bill may go too far in terms of some -- some legal issues, constitutional validity, using the tax code to surgically punish a small group," said Vice President Joe Biden's economic adviser Jared Bernstein said on ABC's "This Week." "That may be a dangerous way to go."

Rep. Barney Frank, the Massachusetts Democrat who heads the powerful banking committee, supported the legislation but said it may not be enough. He suggested that Washington should consider more steps, including suing AIG to recoup the money. The government has an 80 percent equity stake in the financial giant, a position Frank said should be used "to assert our rights."

Populist anger came to a head last week when the Obama administration went on the defensive against AIG's bonuses. It was a distraction for the administration as it sought support for Obama's ambitious $3.6 trillion budget and Treasury Sec. Tim Geithner, who has come under Republican wrath for pushing the bonuses through the plan he helped craft last year as head of the New York Federal Reserve.

"The president's also been clear we don't want to govern out of anger," White House economic adviser Austen Goolsbee said Sunday on CBS' "Face the Nation. He suggested the easiest thing would be for AIG executives to return the bonuses.

"He's going to look at what comes out of the House, what comes out of the Senate, see what ideas we have," Goolsbee said.

The White House and Senate Democrats, including Senate banking chairman Kent Conrad, urged restraint, instead hoping executives would voluntarily return their bonuses.

Meanwhile, Republican Sen. Judd Gregg advised against Congress "grabbing its pitchforks and charging up the hill" in pursuit of the cash.

"People are disgusted and outraged, as they should be," said Gregg. "But let's not overreact in a way that basically has the Congress grabbing its pitchforks, and charging up the hill, and abusing what is a core authority of a government, which is the authority to tax its people."

Gregg said of greater concern is the president's budget plan, which he predicted is doomed to failure and would run the country into bankruptcy.

"The practical implications of this is bankruptcy for the United States. There's no other way around it," Gregg said on CNN's "State of the Union." "If we maintain the proposals which are in this budget over the 10-year period that this budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued."

Sen. Richard Shelby, R-Ala., said Obama would have to scale back his budget, given the nonpartisan Congressional Budget Office reported on Friday the president's budget would produce $9.3 trillion in deficits over the next decade -- more than four times the deficits of Republican George W. Bush's presidency.

Shelby predicted that number could reach $20 trillion in coming years as Obama guides the country to "the fast road to financial destruction."

The CBO predicted a deficit of $2.3 trillion worse than the administration's own projections foresaw. White House Council of Economic Advisers chief Christina Romer downplayed those numbers.

"There is a question whether CBO is right. So we know that forecasts -- both of what the economy is going to do and of what the budget deficit are going to do -- are highly uncertain," she said on "FOX News Sunday."

The Associated Press contributed to this report.