The ranking Republican on the Senate Finance Committee defended legislation he is co-sponsoring to make bonuses more expensive for companies to pay.
Sen. Charles Grassley (R-Iowa) spoke to CNBC a few hours before American International Group chief executive Edward Liddy was to appear before Grassley's committee. (To hear the full interview, watch the video to the left.)
AIG, the giant insurance company that has received $170 billion in government assistance, has paid more than $200 million in bonuses in recent months to keep employees from fleeing its troubled financial products division.
"First of all, we shouldn't have to be doing what we're doing," Grassley told CNBC. "These bonuses should not have been paid."
On Tuesday, Grassley joined Democratic committee chairman Max Baucus (D-Montana) in proposing legislation that would require companies and individuals to pay a 35 percent tax on all retention awards and on all other bonuses over $50,000.
"We're trying to get a corporate ethic that would be responsible," he said. "It would show that people are apologetic towards running a corporation into the ground, and we're trying to get people to think straight."
He defended the proposal against criticism that it might go too far, and said he felt it would discourage companies from simply making bonuses parts of executives' basic salaries.
"Money's fungible," he said. "Sometimes it's difficult to plug all these loopholes, but we feel that we have this tightly-enough written that they won't be able to use (that) subterfuge."
Grassley has been outspoken in demanding that AIG withdraw the bonuses, even suggesting in an Iowa radio interview that AIG executives might honorably kill themselves. He then said he didn't really mean it.
"I'm not suggesting that anybody commit suicide like sometimes they do in Japan," he told CNBC. "I am saying there needs to be contrition, remorse, etc., to show the taxpayers that you recognize what you've done wrong, you recognize you need taxpayers' help, and you're thankful for getting it."
-The Associated Press contributed to this article.