Bail-Out Bill Passes Congress

by Mike Godfrey, Tax-News.com, Washington

06 October 2008

The House of Representatives voted 263-171 on Friday to approve the administration's USD700bn bail-out plan, after the Senate approved it earlier in the week and President Bush immediately signed the bill into law as the Economic Stabilization Act of 2008. It establishes a Troubled Asset Relief Program under which the Treasury is expected to start immediate purchases of toxic debt.

The Dow had risen in anticipation of the vote, but fell when it was announced, ending the week down more than 7% at 10325, and capping a truly dreadful week for equity markets around the world.

While the addition of the unfunded 'tax-extenders' to the basic package - including the vital AMT patch - helped the bill to pass in the Senate, it might have had the opposite effect in the House, which has been rootedly opposed to unfunded spending commitments. The House has often observed a 'pay-go' rule, meaning that any additional spending must be paid for by matching revenue increases, something that is obviously not going to happen at this juncture.

President Bush had begged law-makers to pass what he portrays as a vital defence against imminent economic collapse. The consequences of last Monday's negative vote were scary, and a growing understanding that perhaps after all, Main Street is Wall Street, right now, seems to have convinced many Representatives to overcome their scruples and those of their electors. But the floor resounded with promises of swathes of legislation to curb the excesses of the financial community when Congress returns next year.

Apart from the 'tax extenders' added to the bill, it also now raises the limit on federal deposit insurance from $100,000 to $250,000.

The 'tax extenders' are worth USD150bn in total, and include the AMT patch, energy tax credits and incentives, hurricane relief, improvements to film production tax reliefs, allowing federal tax deductions on state and local sales taxes, railroad and mine tax credits and a host of other provisions.

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