Talking tougher by the hour, livid Democrats confronted beleaguered insurance giant AIG with an ultimatum Tuesday: Give back $165 million US in post-bailout bonuses or watch Congress tax it away with emergency legislation.

Republicans declared the Democrats were hardly blameless, accusing them of standing by while the bonus deal was cemented and suggesting that U.S. Treasury Secretary Timothy Geithner could and should have done more. While the White House expressed confidence in Geithner, it was clearly placing the responsibility for how the matter was handled on his shoulders.

Geithner sent a letter late Tuesday to congressional leaders informing them that he was working with the Justice Department to determine whether any of the AIG payments could be recovered. He cited a provision in the recent economic stimulus law that gave him authority to review compensation to the highest-paid employees of companies that already have received federal assistance.

Fresh details, meanwhile, pushed the AIG outrage ever higher: New York Attorney General Andrew Cuomo reported that 73 current and former company employees — including 11 who have left AIG — received bonus checks of $1 million US or more on Friday. This at a company that was failing so spectacularly the government felt the need to prop it up with a $170-billion bailout.

The financial bailout program remains politically unpopular and has been a drag on Barack Obama's new presidency, even though the plan began under his predecessor, George W. Bush. The White House is well aware of the nation's bailout fatigue — anger that hundreds of billions of taxpayer dollars have gone to prop up financial institutions that made poor decisions, while many others who have done no wrong have paid the price.

AIG chief executive Edward Liddy can expect a verbal pummelling Wednesday when he testifies before a U.S. House of Representatives subcommittee.

Legislation in the works

On Capitol Hill late Tuesday, House Democrats directed three powerful committees to come up with legislation this week to authorize Attorney General Eric Holder to recover massive bonus payments made by companies like the ones paid last week by AIG.

Senate Democrats, meanwhile, suggested that if the AIG executives had any integrity, they would return the $165 million in bonus money. One leading Republican even suggested they might honourably kill themselves, then said he didn't really mean it.

Whatever the process, lawmakers of all stripes said the money — generally "retention payments" to keep prized employees — belongs back in the government's hands.

"Recipients of these bonuses will not be able to keep all of their money," declared Senate Majority Leader Harry Reid in an unusually strong threat delivered on the Senate floor.

"If you don't return it on your own, we will do it for you," echoed Chuck Schumer of New York.

Not all Democratic leaders were racing in that direction. Penalizing people with the tax code could be inappropriate, declared Representative Charlie Rangel, a New York Democrat and chairman of the tax-writing House ways and means committee.

"It's difficult for me to think of the code as a political weapon," he said.

Others saw the connection as reasonable and relevant. House financial services committee chairman Barney Frank, a Massachusetts Democrat, noted that the government, through the bailout, is now an 80 per cent owner of the company and suggested that was grounds to sue to recover the bonuses.

Obama should have pressed AIG harder: Republicans

Senior administration sources say Obama learned only Thursday that AIG was paying employees millions of dollars in bonuses. They said Geithner told the White House on Thursday, and senior aides informed the president later that day.

Republicans said Obama and his administration should have leaned harder on AIG executives to reject the extra pay, raising some speculation over Geithner's future.

"I don't know if he should resign over this," said Senator Richard Shelby of Alabama. "He works for the president of the United States. But I can tell you, this is just another example of where he seems to be out of the loop. Treasury should have let the American people know about this."

The administration quickly moved to quash talk of Geithner's ouster. White House spokesman Robert Gibbs said Obama retains full confidence in his treasury secretary.

There was a daylong rush to the microphones on Capitol Hill — a bipartisan campaign to out-outrage each other.

Return the money or commit suicide: Iowa senator

Senator Chuck Grassley, a Republican from Iowa, led the stampede with a statement Monday night on a radio show that AIG executives should either return the money or commit suicide in what he described as the Japanese style of taking responsibility. He spent much of Tuesday backtracking but still calling for corporate titans to take responsibility for grievous errors in judgment.

AIG has received more than $170 billion from U.S. taxpayers. With bailouts in hand, AIG has paid out tens of billions of dollars to banks, municipal governments and other financial institutions around the world.

At least three Democratic bills and one Republican measure have been introduced to crack down on the Treasury Department and stiffen rules for recipients of bailout funds. Two bills in the House aimed to impose a 100 per cent tax on the bonuses.

In the Senate, the top two members of the chamber's finance committee — a Republican and Democrat — announced a proposal to impose a 35 per cent excise tax on the companies paying the bonuses and a 35 per cent excise tax on the employees receiving them.

The Internal Revenue Service currently withholds 25 per cent from bonuses less than $1 million and 35 per cent for bonuses more than $1 million.