Today, the House secured the additional votes necessary to pass The Economic Stabilization Act of 2008, (HR 1424) with a 263-171 vote. The President signed the bill into law shortly afterward.
Summary of Emergency Economic Stabilization Bill
- Provides funding up to $700 billion dollars for the government to acquire troubled assets in stages. Initially, the Treasury Secretary may buy up to $250 billion in troubled assets. To purchase an additional $100 billion, the President must approve the need for the additional funding and inform Congress. The final $350 billion will be released upon the President's request to Congress, and Congress has the option to pass a joint resolution denying the additional funding within 15 days.
- Requires proceeds from sales of acquired assets to be returned to the Treasury. In addition, for assets guaranteed by the government, risk-based premiums would be charged.
- Limits executive compensation for firms selling more than $300 million in assets through the new program. This includes a 20% excise tax on golden parachute payments triggered by events other than retirement, and a limit on tax deductions for compensation above $500,000.
- Creates two oversight committees: The Financial Stability Oversight Board will ensure implementation of HR 1424 protects taxpayers and serves the best economic interests of the United States. The Congressional Oversight Panel will review the use of authority under the act, the financial markets, and the regulatory system.
- Requires the President to submit a plan to recoup losses from program participants after five years if there is a net loss of taxpayer funds under the purchase program.
- Increases Federal Deposit Insurance Corporation insurance coverage to a maximum of $250,000 per account through 2009.
- Requires the Treasury and other federal agencies to modify troubled loans to mitigate foreclosures.
- Includes additional energy and tax extender provisions, disaster relief, and mental health parity. (See below for a summary of provisions.)
Insights
The House vote was the culmination of two weeks of remarkable political maneuvering. The Administration, led by Treasury Secretary Paulson and Federal Reserve Chairman Bernanke, spearheaded the initial effort to secure Congressional approval. President Bush and the leaders of both political parties in the Senate and House added their support. Notwithstanding this unusual and formidable coalition, the effort was initially unsuccessful in the House, causing enormous turmoil in the markets.
The following are insights into the behind-the-scenes activities and the potential fallout from this difficult vote.
- The power of constituents in the democratic process was perhaps never more apparent. Even though all Members were briefed in detail about the magnitude of the problems and the need for quick action, the overwhelming opposition to a "Wall Street bailout" forced the hand of many members to vote "no," especially those with difficult re-election campaigns. Only after the bill was expanded to include additional provisions and re-cast as a "main street" relief package did the public tide begin to change, enabling vulnerable members to support passage.
- The ultimate impact of how Congressional leaders managed the process and whether members who voted in favor will be punished by their constituents remains to be seen. The House Republican party was deeply dissatisfied with how their leaders handled the debate, which could portend change at the top of the leadership at the beginning of the next Congress. If the package does not restore confidence and stability in the markets between now and November 4, those vulnerable members who were persuaded to switch their votes in support of the measure may be punished at the polls.
- The debate also highlighted the extent to which the "lame-duck" President has lost the ability to move public opinion and to influence lawmakers. Under normal circumstances, the dramatic efforts of President Bush and other key members of the Administration would have substantially impacted the debate and the votes of Republican Members of Congress. That clearly did not happen.
- A final note of interest relates to the unique divisions and unusual alliances that developed within this debate, especially in the House. The conservative Republicans parted company with their rank-and-file Members and joined in opposition with the liberal faction of the Democratic caucus. Many fiscally conservative Democrats (known as "Blue Dogs") also opposed the measure because it will dramatically increase the budget deficit. Some of these fissures may linger into the next Congress, making effective governance more difficult, especially if the margin of control remains close.
Highlights of the AMT, Individual & Business Extenders, Disaster Relief, Tax, Energy, and Other Provisions
- AMT $64B
1. 1-year extension of the Alternative Minimum tax (AMT) relief
2. Increase AMT refundable credit amount for individuals with long-term unused credits for prior year minimum tax liability
- Individual Extenders $11.5B
1. State and local sales tax deduction
2. Qualified tuition deduction
3. Teacher expense deduction
- Business Extenders $37B
1. Extend and modify the tax credit for R&D expenses
2. 15-year straight line cost recovery for qualified leasehold restaurant, retail improvements and restaurants
3. Extend the new markets tax credit (sunset 12/31/09)
- Disaster Relief $8.8B
1. Midwest disaster package
2. National disaster package
- Renewables $9.8B
1. Production tax credit
2. Business & residential investment credits (solar, fuel cells, etc.)
3. Biodiesel and renewable diesel
4. Clean Renewable Energy Bonds
- Vehicles $1B
1. Plug-in vehicle credit
2. Auxiliary power units
3. Alternative refueling stations
- Conservation/Efficiency $3.5B
1. Efficient buildings
2. Smart meters
3. Efficient appliances
4. Conservation Bonds
- Carbon Mitigation/Fuels $2.6B
1. Clean coal investment credits
2. Black Lung restructuring
3. CO2 sequestration credit
4. Refinery expensing
- Other Provisions $11B
1. Set refundable threshold for the child tax credit at $8,500
2. Mental health parity
3. Secure rural schools
Nossaman is available to address any further questions any of our clients may have regarding the Act, or to review any particular questions that may relate to your industry.
Tim Jenkins is a Partner with Nossaman in Washington, DC and can be reached at 202.887.1456 or tjenkins@nossaman.com. Sherry Harper is a Senior Policy Advisor in Washington, DC and can be reached at 202.887.1430 or sharper@nossaman.com.