Obama, House at Odds Over AIG Tax

WASHINGTON, March 22, 2009— -- The Obama administration gave its strongest indication yet today that the president opposes a tax to get the AIG bonuses back.

Jared Bernstein, the vice president's economic adviser, used strong wording in an interview on ABC's "This Week With George Stephanopoulos" to signal that President Obama does not support the 90 percent tax on AIG passed by the House.

"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," Bernstein said. "That -- that may be a dangerous way to go."

The reference to constitutional problems reflects concerns that a tax narrowly aimed at a small group of individuals is unconstitutional, a view advisers say stems from President Obama's history as a constitutional scholar.

Just last week, Obama was harshly critical of the bonuses, ordering Treasury Secretary Timothy Geithner to look for ways to recoup the money after Geithner concluded there was no way to block the bonuses.

"We're going to do everything we can to see if we can get those bonuses back," the president told Jay Leno on "The Tonight Show."

The White House must walk a fine line, because a plan in Congress to tax 90 percent of the AIG bonuses could scare off the very investors the government needs to make the next phase of the recovery plan work.

On Monday, Geithner will outline that plan to buy up the toxic assets crippling the nation's banks. The government would partner with private investors to buy up a trillion dollars in banks' toxic assets -- mostly mortgages gone bad.

The government would pay $100 billion itself, and use low-interest loans to persuade investors to buy the rest.

Among the potential investors are hedge funds, a group Obama has already said he would regulate.

"The thought that the government might after the fact change their compensation is horrifying for them," Douglas Elliott, an economist at The Brookings Institution, told ABC News. "Clearly the government will have to persuade these investors that they're not going to have compensation limits because of their participation."