LEGISLATIVE BULLETIN | October 1, 2008

The Emergency Economic Stabilization Act of 2008 (Substitute Amendment to H.R. 1424)

Summary and Background

On October 1, 2008, the Senate is expected to vote on an economic package that includes the Emergency Economic Stabilization Act of 2008 (EESA) and the Senate-passed Jobs, Energy, Families, and Disaster Relief Act of 2008 (which is comprised of the Energy Improvement and Extension Act of 2008 and the Tax Extenders and Alternative Minimum Tax Relief). The vehicle used for this legislation will be H.R. 1424, the Paul Wellstone Mental Health and Addiction Equity Act of 2007. 

EESA, originally announced on September 28, is the product of days of negotiations between the Department of Treasury, the House of Representatives, and the Senate on how to respond to the nation's financial crisis, stabilize the economy, and address one of the root causes of the crisis, mass home foreclosures. A significant improvement over the Treasury Department's proposal, EESA would: 

·Reinvest in the financial markets by providing the Treasury Department graduated authorization to purchase troubled mortgages, mortgage-backed securities, and pensions; 

·Reimburse the American taxpayer, beginning with a share in the profits gained by participating companies; and 

·Reform financial institutions by strengthening oversight, increasing transparency, and limiting executive compensation. 

The legislation would help prevent unnecessary mortgage foreclosures by allowing the government to negotiate the modification of mortgage terms with loan servicers and extending the provision to stop tax liability on mortgage foreclosures.

The legislation would also increase the FDIC and National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account to $250,000. This change would continue until December 31, 2009. The legislation would also temporarily raise the borrowing limits at the Treasury for the FDIC and the National Credit Union Share Insurance Fund.

 

The Jobs, Energy, Families, and Disaster Relief Act of 2008 (the Senate-passed Energy Tax and Tax Extenders package) would: 1) provide for energy tax extenders;

2) prevent the AMT from raising taxes for millions of middle class Americans; and

3) provide for other non-energy tax extenders that are critical to the financial health and growth of American families and businesses during these uncertain economic times.

 

Major Provisions

 

Division A: Emergency Economic Stabilization

Title I -- Troubled Assets Relief Program

This title would: 

·Authorize the Secretary of the Department of Treasury (hereinafter "the Secretary") to create the Troubled Asset Relief Program (TARP), with strict guidelines, to purchase troubled assets from financial institutions. 

Grant a graduated authorization to purchase troubled mortgages, beginning with $250 billion, with the option to access an additional $100 billion if the President certifies that it is needed, and the option to obtain the remaining $350 billion if the President issues a written request for the additional funding. 

·Require the Secretary to create a program to insure troubled assets. 

·Create the Financial Stability Oversight Board to review and make recommendations on TARP's administration in an effort to ensure taxpayers and the American economy are protected. 

·Require monthly reports to congress on TARP. 

·Raise the FDIC and National Credit Union Share Insurance Fund deposit insurance limitsfrom $100,000 per account to $250,000 until December 31, 2009. It would also temporarily raise the borrowing limits at the Treasury for the FDIC and the National Credit Union Share Insurance Fund. 

·Empower the Secretary to manage troubled assets and require the Secretary to implement a plan to mitigate foreclosures and to encourage servicers to modify loans through, amongst others, the Hope for Homeowners program. It would also increase eligibility for the program and improve the manner in which foreclosures can be prevented.

 

·Require other federal entities that hold mortgages and mortgage-backed securities to develop plans to minimize foreclosures. 

·Require the Secretary to develop strict executive compensation guidelines for corporate participants in TARP. 

·Require that profits from the sale of troubled assets be used to pay down the national debt. 

·Require the Secretary to issue regulations or guidelines to manage or prohibit conflicts of interest in TARP. 

·Require the Secretary to coordinate with foreign authorities and central banks in an effort to create similar TARP programs in other countries. 

·Require that the government receive non-voting warrants from program participants. 

·Require that the Secretary publicly disclose the details of any transaction under TARP within two business days of such action. 

·Require the Comptroller General to conduct ongoing oversight of the activities and performance of TARP. A report regarding these activities must be reported every two months to Congress. TARP must undergo an annual audit by the Comptroller General. 

·Require the Comptroller General to conduct a study and report to Congress on the role of leveraging assets in the current financial crisis. 

·Provide standards for judicial review to ensure that the actions of the Secretary are not arbitrary or capricious and are in accordance with the law. 

·Terminate authority to purchase and guarantee assets on December 31, 2009. The Secretary may extend this authority for an additional year upon certification to Congress. 

·Establish the Office of the Special Inspector General for the Troubled Asset Relief Program. The Special Inspector General will conduct, supervise, and coordinate audits and investigations of the actions of the Secretary and is required to submit a quarterly report to Congress. 

·Raise the debt ceiling from $10 trillion to $11.3 trillion. 

·Demonstrate how legislation will be treated for budgetary purposes under the Federal Credit Reform Act. 

·Establish a Congressional Oversight Panel which will review the state of the financial markets, the regulatory system, and the use of authority under TARP. The panel, which will consist of five outside experts appointed by the Senate and House Majority and Minority leadership, will be required to submit a report to Congress once a month. 

·Prohibit the misuse of the FDIC logoand name to suggest that deposits are insured. It will allow the FDIC to act against any person or institution where the banking agency has not acted. 

·Require that all federal financial regulatory agencies must cooperate with the FBI and other law enforcement agencies on issues pertaining to the development, advertisement or sale of financial products. 

·Allow the Federal Reserve to pay interest on reserves. 

·Require the Federal Reserve to provide an expedited report to Congress upon the use of its emergency lending authority. 

·Make technical corrections to theTruth in Lending Act. 

·Protect the Exchange Stabilization Fund from incurring any losses due to the temporary money market mutual fund guarantee; the program created must reimburse the Fund. The Fund is prohibited from any future use associated with a guarantee program for the money market mutual fund industry. 

·Restate the authority of the Securities and Exchange Commission (SEC) to suspend Mark-to-Market accounting if the SEC determines it is in the public interest and protects investors. 

·Require the SEC to conduct a study on mark-to-market accounting standards as provided in FAS 157. This study shall include the effects of mark-to-market accounting on balance sheets, the impact on the quality of financial information, and other matters. The report must be submitted to Congress within 90 days on its findings. 

·Require that the President submit a proposal to Congress in five years that recoups from the financial industry any projected losses to the taxpayer. 

·Clarify that nothing in this Act shall limit the authority of the Secretary or the Federal Reserve under any other provision of law.

 

Title II -- Budget-Related Provisions

This title would: 

·Require that information used by the Secretary through activities under this Act be made available to CBO and JCT. 

·Require CBO and OMB to report cost estimates and related information to Congress and the President. 

·Require the President include in his annual budget submission to the Congress information related to the costs incurred as a result of this Act.

 

Title III -- Tax Provisions

This title would: 

·Provide changes in the tax treatment of losses on the preferred stock of certain GSEs for financial institutions. 

·Apply limits on executive compensation and golden parachutes for the top five highly paid executives, including the CEO and CFO. 

·Extend current law tax forgiveness on the cancellation of mortgage debt. 

 

Division B: Energy Improvement and Extension Act

Title I -- Energy Production Incentives

 

This title would: 

·Renew energy incentives

• Extension and Modification of Production Tax Credit
• Long-term Extension of Energy Credit
• Long-term Extension and Modification of the Residential Energy-EfficientProperty Credit
• Sales of Electric Transmission Property
• New Clean Renewable Energy Bonds ("CREBs")

 

·Mitigate carbon and coal

• Carbon Capture and Sequestration (CCS) Demonstration Projects
• Solvency for the Black Lung Disability Trust Fund
• CO2 Capture Credit
• Refund of Coal Excise Taxes Unconstitutionally Collected from Exporters
• Steel Industry Fuel:
• Carbon Audit of the Tax Code

 

Title II -- Transportation and Domestic Fuel Security Provisions

This title would:

 ·Enhance transportation and domestic fuel security

• Plug-in Electric Drive Vehicle Credit
• Incentives for Idling Reduction Units and Advanced Insulation for HeavyTrucks
• Bicycle Commuters
• Expansion of Allowance for Cellulosic Biofuels Property
• Extension of Biodiesel Production Tax Credit; Extension and Modification of Renewable Diesel Tax Credit
• Extension and Modification of Alternative Fuels Credit
• Extension and Expansion of the Alternative Refueling Stations Credit
• Publicly Traded Partnership Income Treatment of Alternative Fuels
• Percentage Depletion for Marginal Wells
• Refinery Expensing

 

Title III -- Energy Conservation and Efficiency Provisions

This title would: 

·Conserve energy and increase efficiency

• Qualified Energy Conservation Bonds
• Extension and Modification of Credit for Energy-Efficiency Improvements toExisting Homes
• Extension of Energy-Efficient Buildings Deduction
• Extension of Credit for Energy-Efficiency Improvements to New Homes
• Modification and Extension of Energy-Efficient Appliance Credit
• Accelerated Depreciation for Smart Meters and Smart Grid Systems
• Extension and Modification of Qualified Green Building and Sustainable DesignProject Bond
• Investments in Recycling

 

Title IV -- Revenue Provisions

This title would: 

·Include revenue provisions

• Modification to Section 199
• Basis Reporting by Brokers on Sales of Stock
• FUTA Surtax
• Modification of Section 907
• Oil Spill Liability Trust Fund 

Division C: Tax Extenders and Alternative Minimum Tax Relief

Title I -- Alternative Minimum Tax Relief

This title would: 

·Provide alternative minimum tax (AMT) provisions

• AMT patch
• Extension and Modification of AMT Credit Allowance Against Incentive Stock Options (ISOs)

 

Title II -- Extension of Individual Tax Provisions

This title would: 

·Provide individual extender provisions

• Deduction of State and Local General Sales Taxes
• Qualified Tuition Deduction
• Teacher Expense Deduction
• Additional Standard Deduction for Real Property Taxes
• IRA Rollover Provision
• Treatment of Certain Dividends of Regulated Investment Companies (RICs)
• Estate Tax Look-Through for Certain RIC Stock held by Nonresidents
• Extend the Treatment of RICs as "Qualified Investment Entities"

 

Title III -- Extension of Business Tax Provisions 

This title would: 

·Provide business extender provisions

• Research and Development Credit
• New Markets Tax Credit
• Exception under Subpart F for Active Financing Income
• Look-Through Treatment of Payments between Related CFCs under the ForeignPersonal Holding Company Rules
• 15-Year Straight-Line Cost Recovery for Qualified Leasehold, Restaurant, andRetail Improvements
• Modification of Tax Treatment of Certain Payments to Controlling ExemptOrganizations
• Basis Adjustment to Stock of an S Corporation Making Charitable Contributions ofProperty
• Temporary Increase in Limit on Cover over of Rum Excise Tax Revenues to PuertoRico and the Virgin Islands
• American Samoa Economic Development Credit
• Mine Rescue Team Training Credit
• Election to Expense Advanced Mine Safety Equipment
• Deduction Allowable with Respect to Income Attributable to Domestic Production Activities in Puerto Rico
• Qualified Zone Academy Bonds (QZABs)
• Indian Employment Credit
• Accelerated Depreciation for Business Property on Indian Reservation
• Extend and Expand 50% Tax Credit for Certain Expenditures for MaintainingRailroad Tracks
• 7-Year Recovery Period for Certain Motorsports Racetrack Property
• Expensing of "Brownfields" Environmental Remediation Costs
• Extend Work Opportunity Tax Credit (WOTC) for Hurricane Katrina Employees
• Extension of Increased Rehabilitation Credit for Structures in the Gulf OpportunityZone
• Enhanced Charitable Deduction for Qualified Computer Contributions
• Tax Incentives for Investments in the District of Columbia
• Enhanced Charitable Deduction for Food Inventory
• Enhanced Charitable Deduction for Contributions of Book Inventory to Schools
• Wool Trust Fund
• Special Expensing Rules for Certain Film and Television Productions

 

Title IV -- Extension of Tax Administration Provisions

This title would: 

·Provide tax administration extender provisions

• Permanent Authority for Undercover Operations
• Permanent Authority to Disclose Information Related to Terrorist Activities 

 

Title V -- Additional Tax Relief and Other Tax Provisions 

This title would: 

·Provide additional tax relief and other tax provisions

• Child Tax Credit
• Provisions Related to Film and Television Productions
• Excise Tax Exemption for Wooden Practice Arrows Used by Children
• Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Actof 2008
• Income Averaging for Exxon Valdez Litigation Amounts
• Certain Farming Business Machinery and Equipment Treated as 5-year Property
• Modification of Penalty on Understatement of Taxpayer's Liability by Tax ReturnPreparer
•  

Title VI -- Other Provisions

This title would: 

·Reauthorize the Secure Rural Schools and Community Self-Determination Act of 2000 and Payment in Lieu of Taxes

·Transfer the Interest Earned by Abandoned Mine Reclamation Fund

 

Title VII -- Disaster Relief

This title would: 

·Provide Midwestern disaster tax relief

• Relief for all counties declared eligible for assistance
  • Qualified Disaster Recovery Assistance Distributions
  • Recontribution of Withdrawals for Home Purchases
  • Loans from Qualified Plans
  • Suspension of Casualty Loss Limitations
  • Special Look-Back Rule for EIC and Refundable Child Credit
  • Additional Personal Exemption for Housing Victims
  • Exclusion for Certain Cancellations of Indebtedness
  • Extension of Replacement Period for Property Lost Due to Floods or Tornadoes inthe Midwestern Disaster Zone

 

• Relief for all counties declared eligible for individual assistance or individual and public assistance
  • Relief for Individuals and Families
    • Employee Retention Credit
    • Expansion of Hope Scholarship and Lifetime Learning Credit
    • Secretarial Authority to Adjust Taxpayer and Dependency Status for Taxpayers
    • Mortgage Revenue Bonds
  • Tax Relief for Businesses
    • Tax-exempt Bonds
    • Low Income Housing
    • Additional Depreciation
    • Expensing Property
    • Expensing Demolition and Clean-up Costs
    • Expensing Environmental Remediation Costs
    • Increase in Rehabilitation Credit
    • Five-year Net Operating Loss Carryback for Certain Amounts
    • Tax Credit Bonds
  • Tax Incentives for Charitable Giving
    • Temporary Suspension of Limitations on Charitable Contributions
    • Increase in Standard Mileage Rate for Charitable Use of Vehicles
    • Exclusion from Income of Mileage Reimbursements for Charitable Volunteers
    • Tax Benefits Not Available with Respect to Certain Property

 

·Provide Hurricane Ike disaster tax relief

• Low income housing
• Tax-exempt bonds

 

·Provide national disaster relief

• Individual Loss Provision
• Qualified Disaster Expenses
• Treatment of Net Operating Losses Attributable to Qualified Disaster Casualty Expenses
• Mortgage Revenue Bonds
• Additional Depreciation
• Expensing Property

 

Title VIII -- Spending Reductions and Appropriate Revenue Raisers for New Tax Relief Policy

This title would: 

·Include Deferred Compensation Paid by Certain Tax Indifferent Parties

 

Legislative History

On October 1, 2008, the Senate is expected to vote on an economic package that includes the Emergency Economic Stabilization Act of 2008 (EESA) and the Senate-passed Jobs, Energy, Families, and Disaster Relief Act of 2008 (which is comprised of the Energy Improvement and Extension Act of 2008 and the Tax Extenders and Alternative Minimum Tax Relief). The vehicle used for this legislation will be H.R. 1424, the Paul Wellstone Mental Health and Addiction Equity Act of 2007. 

On September 28, 2008, Congressional leaders announced the Emergency Economic Stabilization Act of 2008 (EESA). The legislation is the product of negotiations between the Department of Treasury, the House of Representatives, and the Senate on how to respond to the nation's financial crisis and address one of the root causes of the crisis, mass home foreclosures. The bill builds upon, but significantly improves, the Bush Administration's original proposal. 

On September 29, the House considered but was unable to pass EESA. On October 1, Majority Leader Reidmoved to package EESA along with the Jobs, Energy, Families, and Disaster Relief Act of 2008 (the Senate-passed Energy Tax and Tax Extenders package). The latter bill passed the Senate (as H.R 6049) on September 23 by an overwhelming 93 to 2 vote, but failed to pass the House on September 29.

 

For a full legislative history ofH.R. 6049, please see the DPC website, available here.

 

Expected Amendments

The vehicle for this economic package will be a substitute to the Amendment to H.R. 1424. Any amendments introduced by Senators will be considered amendments to the substitute. The following amendment to the substitute is expected: 

• Sanders Amendment: This amendment would impose a10 percent surtax on couples with income over $1 million and on individuals with income over $500,000. The amendment would only impact three-tenths of one percent of Americans. The surtax is estimated to raise at least $300 billion over the next five years. 

The Democratic Policy Committee (DPC) will provide information about additional amendments when it becomes available.

 

Administration Position

The Administration supports the passage of the Emergency Economic Stabilization Act of 2008 (EESA). The President has urged Congress to immediately pass this legislation to respond to a "critical moment for our economy."

DPC

DPC