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Taxing bonuses could slow economy

The Pine Street headquarters of American International Group, Inc. in lower Manhattan.

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Kai Ryssdal: Tomorrow will find Secretary Geithner back up on Capitol Hill having a chat with the House Financial Services Committee. Members will be interested to find out what he knows about AIG's bonus payouts and when he knew it.

Today Senate majority leader Harry Reid said he would give Republicans in that chamber some time to chew over proposals to tax back some of those bonuses. Whatever Congress and the president do wind up doing could have big implications, not just for the bank bailout, but potentially for the whole economy. From New York, Ashley Milne-Tyte has that story.


ASHLEY MILNE-TYTE: It could be several weeks before the Senate votes on a bill to tax bonuses. Frank Partnoy teaches law and finance at the University of San Diego. He's says it's unlikely the Senate will pass a bill anywhere near as punitive as the House version.

FRANK PARTNOY: I think the House helped all of us express our collective anger about the AIG bonuses. But I think they're creating a lot of tension and some headaches for the Obama administration.

Banks and other firms might decide to reject government money. And if they don't take that money, they can't turn around and lend it to consumers and businesses. Charles Elson of the University of Delaware says there's also a danger that legislation like this could make the U.S. a less attractive place to do business.

CHARLES ELSON: We've always been viewed as a nation of laws, a stable nation of laws. And when we start using the legal system, the tax system, to punish people, I think you do run the risk of creating a debilitating effect on our reputation globally and making it a lot harder to attract capital.

Right now he says the U.S. needs capital like never before. President Obama seemed anxious to calm things down yesterday when he said it's a mistake to govern out of anger. Doug Muzzio teaches public affairs at Baruch College in New York. He says it's hard to predict how the White House will weigh in.

DOUG MUZZIO: This is a play without any script. We're improving all the way through, everybody -- the director, the producers, the actors, and nobody's quite sure how to do it.

He says anyone putting on a production wants to know what the audience thinks. But one criticism of this show is that its producers are pandering too much to the public.

In New York, I'm Ashley Milne-Tyte for Marketplace.

About the author

Ashley Milne-Tyte is the host of a podcast about women in the workplace called The Broad Experience.

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