President Bush on October 3 signed a massive financial rescue package, the Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 2008 and Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (HR 1424) that authorizes the Secretary of the Treasury to establish a troubled assets relief program, provides a temporary alternative minimum tax (AMT) fix, extension of expiring tax provisions and energy tax incentives. The president signed the Wall Street rescue package only a few hours after it was passed in the House by a vote of 263 to 171. The Senate passed the measure on October 1 (TAXDAY, 2008/10/02, C.1).
The legislation grants the Treasury Department up to $700 billion to purchase assets from troubled financial companies in an effort to jump-start the flow of credit in the economy. However, the bill inserts greater congressional oversight over the flow of funds to the Treasury and includes greater protections for taxpayers. It also lifts the ceiling on the Federal Deposit Insurance Corporation's (FDIC) guarantee on bank deposits from $100,000 to $250,000. Other provisions of the bill limit the so-called "golden parachutes" that executives of failed institutions can receive if their firms take advantage of the Treasury bailout plan.
The FDIC provision appeared to be a crucial component for garnering additional House votes after the chamber on September 29 rejected the Emergency Economic Stabilization Bill of 2008 (HR 3997) by a vote of 228 to 205 (TAXDAY, 2008/09/30, C.1). House Republicans voting against that measure totaled 133, with 95 Democrats joining them. The defeat of the original version was fueled by Republicans' anger over what they perceived as the overly-partisan nature of the bailout debate.
The president, shortly after House passage of the rescue bill, commended congressional leaders for working together in a timely manner to pass the measure. "By coming together on this legislation, we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said in the Rose Garden. "We have shown the world that the United States of America will stabilize our financial markets and maintain a leading role in the global economy," Bush stated.
Treasury Secretary Henry M. Paulson said the government will move rapidly, but also methodically, to implement the new authorities. "Transparency throughout this process will be important, and I look forward to providing regular updates as we move ahead to implement this strategy," he said.
Paulson said the broad authorities in the legislation, combined with existing regulatory authorities and resources, "give us the ability to protect and recapitalize our financial system as we work through the stresses in our credit markets."
From a tax administration perspective, IRS Commissioner Douglas H. Shulman praised Congress for passing the AMT patch and tax extenders in enough time for the IRS to handle the changes on its tax forms and computer systems. In 2007, AMT and extenders legislation retroactive to the start of 2007 was not enacted under December 26, 2007, putting the IRS behind in accepting and processes 2007 tax forms for many weeks into the 2008 filing season. In a written statement immediately after passage of the legislation, Shulman commented, "Timely passage of the AMT and extenders provisions is a great outcome for the nation's taxpayers. This gives the Internal Revenue Service enough time to prepare for the upcoming tax season."
House Speaker Nancy Pelosi, D-Calif., called the measure a "much improved" version of the earlier draft. "Our eye now is to the future, to shine the bright light of accountability on what is happening in our financial markets so that it doesn't happen again." House Minority Leader John Boehner, R-Ohio, described the bill as an "imperfect product," but stressed that Congress had a responsibility to act.
Despite repeated promises not to pass a tax extenders bill that was not fully offset by revenue increases or spending cuts, House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., cast his vote for the bailout bill. The bailout measure included the entire text of HR 6049, as amended by the Senate on September 23 (TAXDAY, 2008/09/24, C.1). Rangel and House Majority Leader Steny L. Hoyer, D-Md., said that they supported the clean energy tax incentives, AMT relief, extensions of expiring business and family tax cuts, disaster relief, mental health parity and other provisions in the bill, even though they did not meet the House pay-as-you-go budget rules.
The combined cost for all the tax measures, energy, AMT, extenders and other provisions, is $150.496 billion, and the offsets in the package total $43.504 billion. Hoyer said that the addition of the tax provisions, combined with the stock market losses and state financial problems, prompted members to switch their votes to approve the bill. According to Hoyer's office, the 111th Congress will convene on January 6, 2009. However, several Democratic lawmakers said they would return to Capitol Hill in mid-November for party organization meetings.
The American Bankers Association (ABA) said the legislation would provide "the financial backstop needed to unfreeze the financial markets and provide for greater transparency and accountability for firms that participate in the program."
By Sarah Borchersen-Keto, Stephen K. Cooper, Paula Cruickshank and George Jones, CCH News Staff
SFC Release: Congress Approves Financial Rescue Plan with Baucus Protections for Taxpayers, Tax Relief to Promote Jobs, Energy, Families
SFC Release: Grassley Praises Signing of Bill to Shield Taxpayers from AMT, Offer Tax Relief for Iowa Disaster Recovery, Continue Tax Incentives for Wind Energy, Tax Relief for College Tuition
Ways and Means Release: Rangel Statement on Financial Rescue Bill
SAP on HR 1424 --Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 2008, and Tax Extenders and Alternative Minimum Tax Relief Act of 2008
Statement by the President on the Emergency Economic Stabilization Act of 2008
White House Fact Sheet on Safeguarding the Financial Future of American Workers and Families
Treasury Department News Release, TDNR HP-1175