Tax Quote of the Week
"Because of the income tax, a penny saved is more than a penny earned."
-- Jeffery L. Yablon
Financial Crisis Leads to Senate Tax Compromise
It has been a busy week for Treasury Secretary Hank Paulson and Chairman of the Federal Reserve Ben Bernanke. The financial crisis this week started with the federal government takeover of Freddie Mac and Fannie Mae. Following the bankruptcy of Lehman Brothers and the unprecedented federal acquisition of 80% of insurance giant AIG, Sec. Paulson proposed a government bailout of "hundreds of billions" in high-risk mortgage debt.
With the financial crisis on Wall Street, the Senate was finally jarred into action. Recognizing the need for action on the deadlocked tax bills, Sen. Max Baucus (D-MT) and Sen. Charles Grassley (R-IA) joined together to craft a compromise.
They determined that a compromise bill could be drafted that combined key elements of five existing bills. The compromise bill will be an amendment to H.R. 6049, The Renewable Energy and Job Creation Act of 2008. It will include AMT relief (2008 exemptions of $69,950 married and $46,200 single), energy deductions and credits, tax extenders, disaster relief for the Midwest and for Texas after the recent tornadoes and hurricanes and mental health parity provisions.
A key to the $131.5 billion act is the compromise on offsets. The energy provisions are fully offset by added taxes on large oil companies and the tax extenders are partially offset by added taxes on hedge fund managers. Other provisions would not be offset, leaving a bill with a net cost of $106 billion.
Sen. Baucus stated, "For the better part of this Congress, we have been working on passing three major tax bills. One has been to put America on a sounder energy policy. The second has been to prevent the alternative minimum tax for raising taxes from millions of American families. And the third has been to extend a series of tax incentives that are vital to American jobs and families."
Sen. Grassley continued, "This legislation will be a huge shot in the arm to the economy, and the timing couldn't be better. The legislation will prevent tax increases on students, teachers and families, including 24 million taxpayers who will be protected from having to pay an average of $2,000 of alternative minimum tax on top of what they already owe. The bill will also extend tax incentives for renewable energy and strengthen Americans' efforts to build a more stable and sustainable energy supply."
Editor's Note: Senate bills must, under normal rules, be within the overall budget limits. Because the bill exceeds the current budget by $106 billion, Sen. Kent Conrad (D-ND) has raised a budget point of order. However, with a vote on Tuesday, September 23, 2008, it still is quite likely to pass. It is probable that 60 or more senators will vote in favor of the bill to pass prior to adjournment at the end of the week.
Will the House Pass Extenders?
Following probable Senate passage of an amended Renewable Energy and Job Creation Act of 2008, the bill will be returned to the House on Tuesday, Sep. 23, 2008.
Because both the House and Senate are facing extreme pressure to adjourn on September 26th so members can campaign for re-election, the House will face limited options.
House Democratic leaders have previously insisted on compliance with "pay-go" rules for AMT relief and the tax extenders. Rep. Charles Rangel (D-NY) is Chair of the House Ways and Means Committee and has vowed to "go to the mat" to preserve the pay-go principles through a full offset for the bill.
However, Speaker Nancy Pelosi (D-CA) indicated that she "will look at" the bill as amended by the Senate. Rep. Steny Hoyer (D-MD) is the House Majority Leader and has also strongly backed pay-go. However, Rep. Hoyer indicated that he would consider the Senate legislation.
Editor's Note: The House faces only two possibilities due to the very limited time. It is possible that Speaker Pelosi could present the Senate bill to the House for an up or down vote. Alternatively, the House could amend the Senate bill, pass yet that amended bill and return it to the Senate. However, with only two or at most three days remaining, this "ping-pong" strategy of passing amended bills and sending them back to the other chamber will quickly run out the clock. Hopefully, with thousands of business owners and over four million teachers anxiously waiting for a favorable decision, the House and Senate will complete work on the tax extenders bill by the end of the week.
