In a stark reversal of Monday's vote, the House approved the Senate-passed version of a financial market rescue bill. By a vote of 263 to 171, the House passed a $700 billion plan to buy up troubled financial assets, patch the AMT for a year, and extend dozens of expiring tax cuts (some for a year, some for two). While the final cost to taxpayers of the bailout is impossible to estimate, the tax portion of the bill will reduce revenues by $107 billion.

Moments after passage, President Bush signed the bill into law.

President Bush signs the Emergency Economic Stabilization Act of 2008 in the Oval Office after the House passed the $700 billion financial bailout bill at the White House in Washington, Friday, Oct. 3, 2008. (AP Photo/Charles Dharapak)

Citizens for Tax Justice released a timely report yesterday examining the special tax breaks and subsidies that are currently handed out to Wall Street firms (and other companies). One in particular this report dissects is the special low rate on capital gains and dividends.

The report's introduction frames the relationship between current proposals to cut capital gains further as a solution to alleviate the financial turmoil:

Americans are in no mood to subsidize Wall Street. This became clear Monday, when the House of Representatives rejected the financial rescue plan that was supported by leaders from both parties as well as the President. Reasonable people can differ on whether the government should step in to prop up the financial system right now. There are progressives and conservatives on both sides of that issue. But what seems indisputable is that Wall Street has mismanaged its affairs and Americans are in no mood to pay for its mistakes.

...

Oddly, the conservative Republicans who say they oppose the financial rescue plan because they don't want to subsidize Wall Street have simultaneously called for more subsidies for Wall Street in the form of a further reduction in taxes on investment profits! We think these GOP conservatives are seriously confused.

The report concludes by citing a reform proposal that would go a long way to make the tax code more simple, fair, and progressive - a reform that happened to be supported by Ronald Reagan:

If House Republicans are sincere about protecting middle-income taxpayers and not giving away the store to Wall Street, then they should abandon their proposed tax cuts for Wall Street. Instead, they should join us in advocating a return to President Reagan's approach of taxing investment profits at the same income-tax rates as wages and other kinds of income.

Great news from the technology trade pubs today - FedSpending.org has been selected by PC World Magazine as one of the top five sites out there that will raise your political awareness. Woohoo!

Below is the screenshot of the article:

Read the full article: 5 Sites That Will Boost Your Political Awareness

Last night, the Senate approved a financial rescue (or Wall Street bailout) bill, HR 1424, by a 74-25 vote. As we noted yesterday, the package includes not only a provision that grants the Treasury Secretary $700 billion to purchase troubled financial assets, but also a package of tax cuts passed previously by the Senate.

According to the Congressional Budget Office (CBO), the ten-year cost of the tax cuts, which include a fully-offset set of tax incentives for renewable energy production; an extension of dozens of miscellaneous individual and business tax cuts; and a $64 billion patch for the Alternative Minimum tax, would total $107.1 billion. The CBO, however, indicates that the cost of the asset purchase program is "impossible at this point to provide a meaningful estimate of the ultimate impact on the federal budget from enacting this legislation," but would be "substantially smaller than $700 billion." Nor can CBO estimate the cost of increasing FDIC limits on insured deposits.

Congressional Budget Office: Letter to Honorable Christopher J. Dodd (estimated budgetary effects)
Joint Committee on Taxation: Estimated Budget Effects of the Tax Provisions Contained in an Amendment in the Nature of a Substitute to HR 1424

Neil Gordon blogs over at the Project on Government Oversight about a troubling provision in the current debate over a bailout proposal for Wall Street that would give Secretary of the Treasury Hank Paulson the ability to waive provisions and requirements of the Federal Acquisition Register (FAR), the set of regulations that govern how the feds run government contracting. Gordon points out a very disturbing irony of this provision:

This would have enabled the Treasury Secretary to award billions of dollars in sole-source contracts to private asset managers firms and financial consultants, even those with a direct financial interest in the bailout. In addition, the Secretary could waive other FAR provisions that protect taxpayers.

Gordon also points out the fascinating analysis released Monday from the Center for Responsive Politics which showed a relationship between campaign contributions from the finance, insurance, and real estate sectors and the way House members voted on the bailout on Monday. The data might shock you - it shocked me, although I suppose after so many years working in Washington, these things should stop surprising me.

It seems that House members who voted for the bill on Monday have collected about 51 percent more in campaign contributions from the affected industries (finance, insurance and real estate) than those who voted against it. Among Democrats, that discrepancy between bill supporters and opponents is an even more astonishing 88 percent.

I wonder if any of those contributions came from companies who may gain from a government contract to fix this mess? Gulp!

Extenders
Hose Democrats have unveiled a $620 billion tax bill (HR 7060) that would extend dozens of expiring tax cuts, including renewable energy tax incentives. The bill is fully offset, and if put to a vote will likely pass has been approved by the House, 257-166. The bill contains $14.2 billion in expiring renewable energy tax cuts, $46 billion in other expiring tax cuts, including a provision to lower the income threshold at which filers can claim the child tax credit, and is fully offset.

The Senate, however, despite having approved the House bill's offsets in one form or another on various bills remains allergic to fiscal responsibility. The bill has also drawn a veto threat from President Bush, not so much because of the bill's contents, but because it doesn't come with a bunch of other stuff included in Senate-passed HR 6049.

• JCT score of HR 7060

AMT Patch
The House has passed a bill (HR 7005) that would patch the AMT and is not fully offset, but that's just not good enough for the Senate: It's their way or the highway. Senate Republicans apparently are only interested in passing one bill and one bill only -- HR 6049, the partially offset package approved by the Senate earlier this week. And fearing the minority party or hoping to spare Bush the political pain of vetoing a bill that would effective lower taxes for 22 million families, Democrat and chairman of the Senate Finance Committee Sen. Max Baucus (RD-MT) has decided to run away and hide in the bushes wishing it would all just go away wimpering, "Republicans won't do it. They [the House] need to just take up the Senate package."

Image by Flickr user Brooks Elliott used under a Creative Commons license

When Congress is not figuring out the best way to give Treasury Secretary Henry Paulson's golfing buddies $700 billion, their attention is focused on tax legislation. Specifically, the House and the Senate are working on coming to agreement on several tax code areas: a patch for the AMT, (renewable) energy tax extenders, non-energy tax extenders, and tax relief for disaster victims. The two chambers are at odds over several issues, but the biggest is if these tax cuts should be paid for. Here's the lay of the land as of Thursday morning:

AMT Patch

• Senate: On Tuesday, passed 93-2, a $120 billion tax package (HR 6049) includes a $61.8 billion non-offset AMT patch
• House: Approved Wednesday (393-30) a standalone bill (HR 7005) that would patch the AMT without offsets

Energy Extenders

• Senate: Included a fully offset $17 billion set of tax cuts in the package passed on Tuesday
• House: Will offer a fully offset package today, the Renewable Energy and Job Creation Tax Act of 2008

Non-Energy Extenders

• Senate: Also passed in the bill passed Tuesday, offset by $25 billion in revenue raisers, a $59 billion package of non-energy related tax cuts
• House: Will offer a fully offset package today, the Renewable Energy and Job Creation Tax Act of 2008

Disaster Relief

• Senate: Included in HR 6049 (passed Tuesday), almost $9 billion for victims of the Midwestern flooding and of Hurricane Ike
• House: Passed Wednesday, by 419-4, HR 7006 that would provide about $9 billion in tax relief for victims all federally-declared disasters

Quick update following up on my earlier post about Congress' progress during this final potentially final week of the session. The House has passed the CR/Omnibus/Emergency gigantic package of spending items this afternoon, 370-58.

The House is currently working on voting on some of the tax bills I jumped into earlier, most of which will have to be sent back to the Senate either because of changes in offsets or due to minor differences. More to come tomorrow.

As the clock winds down on the 110th Congress, legislators are working at a furious pace this week, vetting financial bailout proposals, passing tax and spending legislation, holding oversight hearings, etc. All the things that Congress is supposed to do on a regular basis. It's just quite shocking to see them actually doing it.

So, here's a quick rundown on where things stand.

Senate
Yesterday the Senate took three votes on tax cut proposals (see details in this Watcher article), passing two of them. The first was compiled by both Senate Finance Committee Chairman Max Baucus (D-MT) and his counterpart on the committee Sen. Chuck Grassley (R-IA) and is a $68.1 billion package to extend tax cuts and provide an Alternative Minimum Tax patch. This proposal also included $25.2 billion in revenue raising offsets. This bill passed 93-2. The second proposal was $18.3 billion in energy tax incentives that was full paid for by increasing taxes on the oil and gas industry. This also passed 93-2. These bill were both sent to the House today. While it originally looked as though the House would break apart the first proposal and pass AMT relief seperately, House Ways and Means Chairman Charles Rangel (D-NY) announced this afternoon he would postpone consideration of the tax bills to attempt to make some changes that will "take more time than just today."

House
The House finished off their work yesterday by passing a reconciled version of the FY 2009 Defense Authorization bill that passed the Senate last week. House and Senate leaders dropped provisions in the bill that drew a veto threat from President Bush, including restrictions on using private contractors for security functions in combat zones and allowing contract employees to participate in detainee interrogations. The bill will now be sent back to the Senate for final approval, which is expected.

While the House was voting on the authorization bill on the floor, appropriators were busy drawing up the details of a massive appropriations bill that combines three bills (Defense, Homeland Security, and Military Construction-VA) into one bill, includes a continuing resolution funding the rest of the government through March 6, 2009, and also includes $22.9 billion in emergency funding for disaster relief. The House Rules Committee approved the bill for consideration Tuesday night by a vote of 9-4. The total pricetag for this bill is $600.6 billion, almost 60 percent of the entire discretionary budget outlined in this year's budget resolution. The proposal includes limited additional items, but does appropriate $5.1 billion for the Low-Income Home Energy Assistance Program and $7.5 billion to support a $25 billion loan program to U.S. automakers.

Given the current status of this jumbling of legislation and the pending action needed on some kind of fiscal bailout, I can't see any way at all that Congress will adjourn on Friday (the 26th) as they have planned to hit the campaign trail. I've seen snippets of rumors that the House and Senate are thinking about hanging around for the weekend, but they really need more time than that. Now that McCain is suspending his campaign outside of Washington so he can come to Washington and continue to campaign, don't you think members of Congress could stick around at least one more week?

Budget afficionado Stan Collender says that a $700 billion Wall Street bailout will define the budget and, ultimately, the next president's spending priorities for several years.

That would increase the deficit to $1 trillion or more. (My apologies for the italics, but it's hard not to use them in this situation.) If what's left of the $700 billion is spent in 2010 and activities in Iraq and Afghanistan continue that year, the deficit for two consecutive years could be close to that level.

[...]

But it's also hard to see how the 2001 and 2003 tax cuts, which expire at the end of 2010, get extended as easily or completely as they might have before. In fact, nothing else that might be considered in the next few years has the potential to reduce the dramatically increased deficit by as much as quickly as scaling back on these cuts or letting them expire.

Some provisions, like marriage penalty relief and the $1,000-per-child tax credit, might still be a slam dunk. But others, like the top marginal tax rate, capital gains, dividends, estate and gift taxes, and small business expensing, are clearly in jeopardy now.

I don't know, Stan. One should never underestimate the appetite Republicans have for tax cuts. In their world, there's never a bad time for a tax cut. From a BNA email:

A group of House Republicans proposed Sept. 23 temporarily suspending the capital gains tax as a way to coax capital back into sluggish lending markets and offset the cost of a proposed government bailout of the U.S. financial system.

"We have a liquidity crisis and this would bring as much as a trillion dollars in capital sitting on the sidelines, we believe, back into the market," Rep. Jeb Hensarling (R-Texas), chairman of the Republican Study Committee, told reporters at a press conference.

At least Hensarling just skipped the "tax custs pay for themselves" nonsense and went straight for a bold new baseless assertion.

It strains the imagination to believe that investors are "sitting on the sidelines" because the capital gains tax rate is too high. They didn't seem to mind it in the late 90s when capital gains rates were nearly twice what they are today and the stock market saw a 34% increase from 1997 to 2000. It is my understanding, however, that the stock market has been declining the past year, which means the average investor has been paying nothing in capital gains taxes. In fact, because investors can claim capital losses as an income tax deduction, they have an incentive to gamble on the market as their actual losses will be reduced by the amount their income taxes are reduced. Cutting the cap gains rate to zero might induce even more people to wait until market conditions improve, because the average investor would see his tax bill increase.

Update: Oops. Capital losses are offset gains, and in the event of net capital losses, they are deducted from income. So, the capital gains tax rate does not affect net capital losses, just gains.

Image by Flickr user sea_bass used under a Creative Commons license

With all the news of the massive Wall Street bailout, I've heard really nothing about how this $700 billion gamble is supposed to be paid for (other than more borrowing, which is to say paid for by later). And what I have read, makes me real nervous. In a "dear colleague" letter, former chair of the Republican Study Committe Rep. Mike Pense (R-IN) pleads with colleagues (MS Word doc) to avoid raising revenue or the national debt.

If Congress decides to spend nearly 1 trillion dollars on a corporate bailout, it must find budget savings to prevent that cost from being passed along to the American people.

[...]

[Republicans] should demand consideration of free market alternatives to massive government spending and we should fight to pay for the solution through budget cuts and reform instead of more debt or taxes.

Surely Rep. Pense knows that the entire FY 2009 discretionary budget is $1.01 trillion. Of that, $350 billion funds non-defense, domestic discretionary programs. I don't know what Pense has in mind, but there simply isn't $700 billion to be found in "budget savings" that would prevent an increase in the national debt.

Just a little perspective on the size of this bailout.

Image by Flickr user dharma communications used under a Creative Commons license.

House Democratic leaders have announced some details of a potential continuing resolution (CR) that would keep the federal government operating for half a year from the start of the FY 2009 fiscal year on October 1 through March of 2009. With none of the appropriations bills enacted into law and only eight days before the start of the fiscal year, passage of a CR is almost guaranteed. CongressDaily reported this afternoon some of the details of the plan:

According to a draft version of the CR, House Democrats would fund most federal government programs at FY08 levels until March 6 unless Congress acts before that. The draft also includes $5.1 billion for the Low Income Home Energy Assistance Program. House Democratic leaders had previously discussed including the funding in an economic stimulus package valued at about $50 billion. The package also includes $25 billion in loan guarantees for the U.S. auto industry that was authorized in legislation enacted last year.

You can read a discussion draft of the proposed continuing resolution.

Update: 9.23.08, 4:00 pm
CongressDaily is reporting ($) this afternoon that the House will take up the proposed CR legislation on Wednesday this week. More details to come tomorrow.

The Center on Budget and Policy Priorities has updated their analysis of the proposed expansion of the Child Tax Credit (CTC) that is currently being debated in Congress. The CTC expansion is included as part of the "tax extenders" package of tax cuts that is scheduled to be debated this week. Looks like the expansion would help some pretty hard working folks:

A proposed Child Tax Credit expansion before the House and Senate would benefit 13 million children - 2.9 million who would become newly eligible for the benefit and 10.1 million who would see their credit increased due to this provision, according to the Tax Policy Center. These 13 million children come from families with parents who work in such jobs as nursing home aides, cook, pre-school teachers, and construction workers.