October 03,2008

Congress Approves Financial Rescue Plan With Baucus Protections For Taxpayers, Tax Relief To Promote Jobs, Energy, Families

Finance Chairman says Congress “did what we had to do” to stop credit freeze from hurting American communities

Washington, DC – Senate Finance Committee Chairman Max Baucus (D-Mont.) today said that Congress has “done its job” as the House of Representatives approved the Emergency Economic Stabilization Act of 2008 – a financial rescue plan that will allow the U.S.Treasury to purchase bad assets threatening the solvency of American financial institutions.The legislation now moves to the White House for signature into law. Baucus commented onthe necessity of congressional action to save the American economy and stop a current freezeon credit from further harming American families and communities.

“There are really only two good things to say about the passage of this legislation – first,that Congress has at least done its job in taking action to keep the current financialcrisis from hitting folks at home even harder, and second, that we insisted on improvements to protect and provide tax relief to America’s working families in this time of economic hurt. It is still outrageous that Wall Street greed was allowed to run rampant and force the need for this rescue plan in the first place,” Baucus said. “At least we can be pleased that this legislation included protection for 20 million American families from the alternative minimum tax, job-creating tax incentives for alternative energy, and important family and business tax cuts like the college tuition deduction and the research and development tax credit. But I want to be very clear that Congress cannot go home now feeling satisfied.

 “We must work constantly to oversee the implementation of the Treasury plan, to track, protect, and recoup every taxpayer dollar that runs through it. For my part, I will urge the immediate appointment of the Special Inspector General created in this legislation, and seek to move a nominee through the Finance Committee before the end of the year. Congress must also begin immediately to design regulatory improvements that will keep such a crisis from ever happening again.”

At Baucus’s insistence, the final financial rescue plan included a number of improvements and protections for taxpayers, as follows:

  • a special Inspector General to fight waste, fraud and abuse in the Treasury program
  • cuts to executive compensation and “golden parachute” severance plans for companies participating in the rescue plan, as well as tougher tax treatment of executive pay
  • tax relief for struggling homeowners, plus a standard property tax deduction for 28 million who do not itemize on their Federal taxes
  • help for community banks suffering losses from the collapse of Fannie Mae and Freddie Mac

The rescue plan also includes bipartisan, Baucus-championed tax relief promoting jobs,energy, and families. The additional measures include approximately $18 billion in job creating alternative energy tax incentives, protection for 20 million Americans from the alternative minimum tax, extensions of expiring tax cuts for businesses and families –including the college tuition tax deduction, the state and local sales tax deduction, the teacher tax credit, and the research and development tax credit – natural disaster relief, and parity for mental health treatment.

Full legislative text of the financial rescue plan is available at http://banking.senate.gov. Arevenue table for tax provisions in the Emergency Economic Stabilization Act, both those in the underlying financial rescue plan and the added energy incentives, AMT and other tax relief, is online at http://www.jct.gov/x-78-08.pdf.

Summary details of the Baucus provisions follow here:

Creation of a Special Inspector General:

The Special Inspector General for the Troubled Asset Program will be completely independent from the Treasury Department, with funding and full authority to audit, investigate, and recommend changes to the program at will. The Special Inspector Generalwill be appointed by the President and confirmed by the Senate. The office will have $50 million in funding to ensure its ability to monitor and go after any and all waste, fraud, and abuse in the program. The Special Inspector General will be required to make his or her first report to Congress within 60 days of confirmation, to facilitate strong congressional oversight of the Treasury plan.

Stronger Taxation of Compensation and Severance Pay for Financial Executives:

The financial rescue plan contains non-tax measures aimed at limiting executive compensation and “golden parachute” severance packages overall for companies and executives participating in the buyout – a key element in gaining approval of the package among negotiators. When the Treasury directly buys assets from a company, not through an auction or bidding process, the financial institution will be required to meet certain standards for executive compensation, including a total prohibition on “golden parachute” severance payments to senior executive officers.

When more than $300 million of a company’s assets are purchased by the Treasury through an auction, “golden parachute” payments will be banned for top executives hired while the Treasury rescue is in effect and terminated for any reason, or in the case of bankruptcy, insolvency, or receivership of the financial institution. Additionally, tax provisions will kick in to strengthen the tax treatment of remaining executive compensation and severance packages. The deductibility of executive compensation for companies will be cut in half from the level in current law, and companies will also lose deductions currently available for excessively large severance packages. Executives receiving severance packages will continue to face a 20 percent excise tax on payments once they reach an excessive threshold,and that tax will now be due if the executive leaves for reasons other than a standard retirement for which they are eligible – not just if the company changes hands, as in current law.

Help for Homeowners Sinking Under Mortgage Debt:

Usually, when homeowners have parts of their mortgages forgiven, they immediately owe income taxes on the amount of indebtedness forgiven. To keep struggling homeowners from facing higher tax bills, the housing relief bill passed by Congress this year allowed homeowners caught up in the mortgage crisis to avoid paying tax on forgiven mortgage debts through 2009. To help more homeowners stay on their financial feet in the ongoing economic crisis, the rescue plan will extend through 2012 the housing bill provision that forgives income from the cancellation of indebtedness. It does not extend the relief to home equity loans.

The package of tax relief added to the overall bill also includes an extension of the Baucus authored standard property tax deduction for American homeowners who do not itemize on their Federal taxes. An estimated 71.8 million American homeowners who pay property taxes to their State and local governments, but only 43.5 million receive a Federal tax deduction for those taxes – those who itemize on their annual returns. The “Non-Itemizer Real Property Tax Deduction” provides a standard deduction – $500 for single filers and$1,000 for joint filers – to reach 28.3 million American homeowners who deserve property tax relief.

Fairness for Banks Hit by the Failures of Fannie Mae and Freddie Mac:

Federal law limits the allowable investments for banks, and so many community banks invested in Fannie Mae and Freddie Mac preferred stock that became worthless when the government bailed those companies out. This bill ensures fairness for the approximately 800 banks that held Fannie and Freddie preferred stock, by allowing financial institutions or financial institution holding companies to treat their Fannie and Freddie losses as ordinary losses. Applying to any preferred stock that was owned on September 6, 2008 or sold between January 1 and September 6, 2008, this provision will allow banks to claim the book benefit of the loss on their tax returns, therefore reducing the need to obtain additional capital from the FDIC or investors. This should also prevent some community banks from becoming insolvent.

A summary of these tax provisions in the Emergency Economic Stabilization Act is on the Finance Committee website.

Tax Relief Promoting Jobs, Energy, Families:

The financial rescue plan also contains the entire text of H.R. 6049 as amended by the Senate on September 23 – including clean energy tax incentives, alternative minimum tax relief,  extensions of expiring business and family tax cuts, disaster relief, mental health parity, andother provisions. The Senate amended H.R. 6049 with two measures – one containing energy tax incentives and the other containing all remaining provisions. The combined cost for all measures – energy, AMT, “extenders,” and other provisions – is approximately $150 billion, and the offsets in the package total approximately $43.5 billion. Energy provisions are completely offset, and “extenders” and other provisions are partially offset. Of the total cost, $64.1 billion is unoffset AMT relief. Both the House and Senate have previously passed unoffset AMT relief this year.

A summary of energy tax provisions, as well as a summary detailing alternative minimum tax provisions, business and family tax relief,disaster relief, mental health parity, and other provisions can be found on the Finance Committee website.

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