Tax News

CCH (cch.taxgroup.com) reports:

  The House on September 29 voted 228 to 205 to reject the Emergency Economic Stabilization Bill of 2008 (EESA) (HR 3997). House Republicans voting against the measure totaled 133, with 95 Democrats joining them. Treasury Secretary Henry M. Paulson, Jr., will be consulting with President Bush, Federal Reserve Board Chairman Ben Bernanke and congressional leaders as to the next steps, according to a statement released by the Treasury.

  " In the meantime, we stand ready to work with fellow regulators and use all the tools at our disposal, as we have over the last several months, to protect our financial markets and our economy," said Treasury Assistant Secretary for Public Affairs and Director of Policy Planning Michele Davis.

  Prior to the vote, President Bush described the EESA as "a bold bill that will help keep the crisis in our financial system from spreading throughout our economy."

  The bill would have given the Treasury $250 billion immediately, and would have required the president to certify if an additional $100 billion is necessary. The remaining $350-billion disbursement would have been subject to congressional approval. The Treasury would have been required to report on the use of the funds and progress made in addressing the crisis.

  Meanwhile, the EESA also called on the Treasury to modify troubled loans wherever possible to help families keep their homes. It also directed other federal agencies to modify loans that they own or control.

  The legislation also would require companies that sold some of their bad assets to the government to provide warrants so that taxpayers could benefit from any future growth these companies might experience as a result of participation in this program. The legislation would require the president to submit legislation to cover any losses to taxpayers resulting from this program by charging a small, broad-based fee to all financial institutions.

  The EESA provided that, in exchange for participation in the program, companies would lose certain tax benefits and, in some cases, would have to limit executive pay.

  In a September 28 letter from Office of Management and Budget (OM Director Jim Nussle to House Minority Leader John A. Boehner, R-Ohio, Nussle stated that the impact on the taxpayer would be "substantially less" than $700 billion. "No one knows just how much these assets will sell for, but since 90 percent of mortgages are currently being paid on time and in full, we can expect a substantial payback on our investment." He added that, in some cases, if a mortgage asset is purchased at a deep discount from its face value, taxpayers may even see a positive return on their investment.

  House Financial Service member Emanuel Cleaver II, D-Mo., said that his constituents believe the bailout bill would allow the federal government to spend tax dollars to bail out millionaires, or executives with lucrative golden parachutes. Rep. John Tanner, D-Tenn., said lawmakers did a poor job of communicating the seriousness of the economic problems that the bailout bill would address. "Nobody knew for sure what we were avoiding, and nobody knew for sure what we were alleviating," he said.

  Rep. Joseph Crowley, D-N.Y., said the bailout bill failed because of a lack of GOP support. "Outside of war and peace, this is the most important vote people will take in their lives." But Rep. Eric Cantor, R-Va., the GOP Chief Deputy Whip, said more Republicans would have voted for the bill, but a partisan speech given by House Speaker Nancy Pelosi, D-Calif., made at least 11 members vote against the bill.

  House leaders will either find the necessary votes to bring the same bill up in the same format, or they will negotiate a better piece of legislation that is more acceptable to House Republicans, predicted Rep. Chris Van Hollen, D-Md.

  By Sarah Borchersen-Keto and Stephen K. Cooper, CCH News Staff

Amendment to the Senate Amendment to HR 3997, Emergency Economic Stabilization Act of 2008, HR 3997

Congressional Release: Section-by-Section Analysis of the Legislation, Emergency Economic Stabilization Act of 2008, HR 3997

Congressional Release: Summary of the Emergency Economic Stabilization Act of 2008, HR 3997

White House Statement: A Strong Bipartisan Proposal To Stabilize Our Financial System

Statement of Administration Policy on HR 3997, Emergency Economic Stabilization Act of 2008

Letter from Office of Management and Budget Director Jim Nussle to Rep. John Boehner

Treasury Department News Release, TDNR HP-1167

Treasury Department News Release, TDNR HP-1168