Posted on Wed, Oct. 01, 2008
WASHINGTON — The Senate version of a $700 billion plan designed to rescue the ailing financial sector from potential collapse is virtually identical to large parts of the legislation rejected Monday in the House of Representatives.
However, the Senate measure, called the Emergency Economic Stabilization Act of 2008, adds unrelated tax-cut legislation. That may — or may not — bring more House votes if and when it's re-introduced in the lower chamber. It also may alienate fiscal conservatives who oppose tax breaks that expand federal deficits.
In the financial rescue section, the Senate bill would:
- Provide the government an equity stake, through non-voting or preferred stock, in companies that are unloading bad assets. If these companies go bankrupt, these warrants convert to a type of debt that places the government at the head of the list of creditors in any bankruptcy proceeding.
- Give the Treasury secretary broad discretion to buy virtually any distressed asset in an effort to get it off the books of a troubled bank or financial firm and help unclog the credit markets. This is called the Troubled Assets Relief Program, or TARP.
- Provide $250 billion immediately to purchase mortgage-backed securities and other troubled assets, another $100 billion with the president's authorization and the remaining $350 billion would be subject to separate congressional approval.
- Give the Federal Deposit Insurance Corp. the ability to borrow without limit from the Treasury to help stabilize banks it regulates, both large and small. This isnt in the House legislation.
- Allow the FDIC to raise deposit insurance to $250,000 from the current $100,000. Affects the sum of deposits, not each account, in a depositor's name at any given bank. This too isnt in the House legislation.
- Require the comptroller general to monitor and evaluate TARP's performance, especially whether it is helping to prevent foreclosures, providing stability in financial markets and protecting taxpayers. The Government Accountability Office will have authority to order corrections in the TARP effort.
- Order the comptroller general, the nation's chief auditor, to report back to Congress by June 2009 on whether the government should curtail the ability of banks and others invest with borrowed money. Investment banks borrowed $30 to $40 against every $1 of their own capital they invested, helping create today's global financial crisis.
- Limit courts from issuing restraining orders or injunctions against the Treasury secretary unless alleging a constitutional violation. In those cases, injunctions would have to be handled on an expedited basis by federal courts. Significantly, there is no limited liability expressed that would necessarily protect the federal government from lawsuits by investors when the government purchases distressed assets.
- Create a special inspector general for the TARP program, to supervise and audit the purchase of distressed mortgages and other bad assets.
- Raise the nation's debt ceiling to $11.3 trillion.
- Hold hearings on the effectiveness of the program and issue a special report on proposed regulatory reform.
- Reaffirm that the Securities and Exchange Commission has the authority to suspend an accounting rule that some critics think has exaggerated the deflated prices of the toxic mortgage bonds at the heart of the financial crisis. The practice, called mark-to-market reporting, requires banks and other financial firms to report the present-day value of distressed assets that have a hold-to-maturity value. This also is called fair-value reporting, and it was implemented after the Enron scandal to discourage reporting of inflated prices.
- Limit the tax write-offs for executive compensation above $500,000 for companies that sell distressed assets to the government.
- Prohibit "golden parachutes" for executives of firms that are selling assets directly to the government. If the government purchases from a firm, via auction, $300 million or more in troubled assets, similar limits on bonuses and other executive compensation would apply.
The Senate bill also would:
- Make permanent authority for undercover operations.
- Make permanent authority for disclosure of information relating to terrorist activities.
Separate from the original House legislation, the Senate bill contains an energy section, called the Energy Improvement and Extension Act of 2008. It would:
- Extend the renewable energy tax credit for wind and refined coal facilities, and expands use of biomass.
- Extend tax credits for marine and hydrokinetic research, which involves energy created from waves and tides, as well as solar and fuel-cell research.
- Allow energy credits to be counted against the alternative minimum tax.
- Give steelmakers tax credits for purchase of renewable fuels.
- Let utilities issue tax-free bonds to promote use of clear, renewable fuels.
- Expand tax credits for investment in coal gasification programs.
- Extend by four years a temporary increase in the coal excise tax to fund black-lung disability programs for miners.
- Provide tax credits for carbon sequestration efforts.
- Allow producers of cellulosic bio-fuels to seek accelerated tax depreciation.
- Double the tax credit for production of bio-diesel and renewable diesel fuels.
- Extend a tax credit of $2,500 to plug-in electric hybrid vehicles.
- Allow fringe benefit reimbursement for qualified bicycle commuters.
- Broaden the scope for issuance of conservation bonds.
- Extend current deductions for energy efficient commercial buildings and homes.
- Provide small tax credits for purchase of energy efficient dishwashers, washing machines and refrigerators.
- Accelerate tax deductions for use of smart meters that help a consumer regulate energy use to reduce peak-hour consumption.
- Reduce by 3 percent the tax deductions on income enjoyed by producers, refiners, transporters and distributors of oil and natural gas.
- Eliminate the difference in tax treatment of foreign oil and natural gas production and foreign oil-related income.
- Extend and increase by 3 cents a barrel the oil spill liability tax.
In a section on the tax code, the Senate bill also would:
- Raise the exemption level of the alternative minimum tax from the current $66,250/$44,350 for joint or single filers to $69,950/$46,200.
- Extend tuition deductions.
- Extend certain deductions for elementary and secondary school teachers.
- Extend an additional standard deduction on real property taxes for non-itemizers.
- Continue tax-free distribution from retirement plans to charities.
- Extend and modify the research tax credit.
- Extend restaurant improvement credits.
- Extend the tax credit for mine-rescue team training.
- Extend the tax credit for advanced mine safety equipment.
- Accelerate depreciation of business property on Indian reservations.
- Extend cost recovery period for motor racing tracks.
- Extend work opportunity tax credit for Hurricane Katrina employees.
- Extend increased rehabilitation credit for structures in Gulf of Mexico opportunity zone.
- Extend tax credit for investment in the District of Colombia.
- Increase tax deduction for charitable contributions to food inventory.
- Increase tax deduction for charitable book giving.
- Raise to $8,500 the income threshold for calculating the refundable portion of a child tax credit.
- Exempt from excise tax certain wooden arrow shafts for use by children.
- Clarify income averaging for settlement amounts received in connection with Exxon Valdez litigation.
- Provide temporary tax relief for areas damaged by Midwestern storms, tornadoes and flooding and by Hurricane Ike.
The legislation also includes a section on creating parity for the insurance treatment of mental health problems. It ends with sections on state and local government and how these governments secure funds for federal lands within their boundaries.
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