One week and a few hundred billion dollars later, the controversy over the propriety of AIG’s bonuses is largely gone from the front pages — replaced, among other things, by the controversy over the propriety of the Obama-Geithner bailout plan. The Senate is at least delaying and is possibly entirely reconsidering action on the bonus tax. Max Baucus, who had been one of the bill’s fiercest advocates, now seems strangely indifferent about its prospects.
There are at least six reasons why a bill that passed with more than 75 pecent of the House’s vote now has only the faintest of chances of passing in the Senate:
1. The White House doesn’t like it. The Administration has gone from damning the House bill with faint praise to more explicit disavowals of its logic, and from what I’ve heard from people in consultation with the White House, their private reluctance on the matter is probably even greater. Ten of the 12 cosponsors of the Senate version of the bill are from states that Obama won in November. If the White House wants to bury the bill, logic would dictate that it probably can.
2. Obama largely avoided political fallout from the AIG bonus scandal. The hypothesis that we reached over the weekend — that voters are largely not blaming Barack Obama for the AIG bonuses — now has some polling evidence to back it up. According to Gallup, just 7 percent of voters principally blame Obama for the bonuses, while 46 percent blame AIG management and 19 percent blame the Congress. Thus, there would no longer appear to be an imperative to pass a bill as a “least-bad” alternative to defend against a precipitous decline in Obama’s approval rating.
3. The bill isn’t actually all that popular. A CBS poll released on Monday reveals that, while 77 percent of the public thinks that the government should try and recover AIG’s bonus money in the abstract, support drops to 51 percent (versus 44 percent opposed) when voters are asked about the more specific proposal of “tax[ing] bonuses paid to executives at the rate of 90% if their company is receiving federal bailout money” — essentially what the House passed last week. Because the House was afraid of constitutional trouble if it drafted a bill which was too narrow, it instead wound up drafting a bill that is broader but materially less popular.
4. Just two senators can kill it. In recent legislative years, the House has voted to approve about twice as many bills per legislative session as the Senate. This is by no means a surprise in consideration of the more aggressive use of the filibuster and the more languid pace of life in the Upper Chamber. Nevertheless, it should serve as a reminder that the Senate has lots of lots of ways to kill a bill if it so desires. The easiest way for the Senate to accomplish this is through the practice of the hold, by which any one Senator can quash a bill unless the Majority Leader is willing to take a cloture (filibuster-breaking) vote to advance it. Which two senators, then, could effectively kill the bill? Harry Reid, by refusing to take a cloture vote, plus any of the other 98 senators, by placing a hold on it. (Paging Dr. Coburn. Dr. Coburn to the Senate Cloakroom…)
5. The Obama-Geithner plan is probably a “go”. For better or for worse, the enthusiastic response of equities markets to the Public-Private Investment Program crafted by Treasury Secterary Tim Geithner has probably entrenched it: it may or may not succeed, but it will very likely be attempted in something resembling its present form. As potential private participants in the PPIP (say that five times fast) have expressed skepticism about participating in the plan if they are subject to what they perceive to be capricious or punitive actions coming from the Congress, the Senate may be disinclined to rock the boat just as the plan is being rolled out.
6. Cooler heads may be prevailing. Lastly, as the AIG controversy recedes somewhat from the public consciousness and as some of the bonus money has been given back by its recipients, the Senate may tend to consider the bill more on its economic merits and less on its political ones. But it is hard to identify any serious economist who thinks the bill makes economic sense. Meanwhile, the decision to levy 90 percent taxes (or 70 percent, as the Senate version proposes) on particular individuals may have been one of those had-to-be-there, gravity-defying moments that is unlikely to be replicated except under intense and somewhat unusual political pressures.
With these six factors working against it, I would guess that the bill has not more than a 5-10 percent chance of passing in something resembling its present form, though the prospects forthe bill passing in any form (i.e. a slap-on-the-wrist, severely watered-down version) are probably a little higher.
This does not mean, however, that the bailout skeptics won’t have gotten something for their trouble. As Chris Bowers points out, the bonus controversy has probably shifted the needle from “difficult” to “near-impossible” when it comes to Congress’ willingness to approve additional bailout monies, a fact which the White House seems to be keenly aware of and which may have informed their decision to proceed as they have (the PPIP plan will not require Congressional approval.) Chris, in fact, goes so far as to declare the bailout window is entirely closed. I think that is a little overclaimed — I can imagine the Senate approving a “token” sum of $100 billion or so if the Obama-Geithner plan is deemed to be a success (the existing plan is almost certainly too small to cover for all of the troubled assets.) I can also imagine the Senate being willing to agree to additional bailout funds given extremely stringent limits on compensation — limits which Wall Street would probably be unwilling to accept.
But Chris’s contention is basically correct. While the bonus tax bill is probably dead, its legacy may continue to resonate for some time.