In the wake of public outcry at the $165 million in bonuses paid out by American International Group Inc. (AIG) to top executives at AIG Financial Products — the division largely blamed for the fall of the giant insurer — regulators are stepping up to bat with the only weapon they may have to reverse the payments after-the-fact: legislation. House Democrats are slated to vote later Thursday on a proposed bonus-blocking bill that would discourage the use of funds at major financial institutions for lavish executive bonuses by imposing a 90 percent tax on such bonuses, according to a report by Bloomberg. The tax, if passed, would apply to employees at companies that have received more than $5 billion from the government through the Troubled Asset Relief Program. The tax would be imposed on bonuses granted after Dec. 31, 2008 to employees that make more than $250,000 a year after bonuses. A crucial provision within the bill lifts the tax from bonuses that are returned to the company — an encouragement for recipients to forgo the hassle by returning funds directly to their employers. According to Bloomberg‘s sources, the current bill wouldn’t apply to foreign employees of these companies — like those working in the London office of AIG — but the Senate is compiling its own version of the bill, a 70 percent excise tax on bonuses, that would be split between employees and the company. Such an excise tax would mean the government could still collect back funds from foreign employees by forcing the company to pay their 35 percent share. As vocal as the outcry has been regarding the bonuses (chairman Edward Liddy at a House subcommittee hearing Wednesday said the company has received word of threats on bonus recipients to the effect that they “should be executed with piano wire around their necks”), taxpayers may still have a long way to go before they see progress in the troubled AIG. According to a report released Wednesday by the U.S. Government Accountability Office, AIG’s recovery and repayment of government funds might very well hinge on its access to more support funds. “If the ultimate goal is avoiding the failure of AIG, the Federal Reserve and Treasury [Department] have achieved that goal in the short-term,” the report’s authors wrote. “…AIG and federal regulators acknowledge that there may be a need for further assistance given the significant challenges AIG continues to face. Therefore, more time is required to determine if the goal will be fully achieved in the long-term.” AIG’s repayment of federal funds is contingent not only on the company’s maintained solvency, but the effective restructuring of AIG, “including the sale of subsidiaries,” the GAO said. Read the GAO report. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.