US Senate Approves Bailout Recipe With Added Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

03 October 2008

In the early hours of Thursday morning, the United States Senate passed legislation which combines over USD100bn in tax cuts with proposals for the US government to take on up to USD700bn in bad mortgage-related debts to stabilise US and world markets.

The bill, which contains tax credit extensions for the renewable energy industry, alternative minimum tax relief and tax relief for victims of natural disasters passed by 74 votes to 25 in the Senate. The bill, however, is expected to undergo tougher scrutiny in the House of Representatives, which will vote on the provisions next.

The tax cuts, most of which are not offset with other revenue-raisers, have been tacked onto the financial rescue package by the Senate in a bid to generate more support for the plan among House Republicans, which has rejected the plan once already. But whilst supporters of the bailout measures are cautiously optimistic that the House will give its consent to the spiced-up bill, allowing President Bush to sign off on the legislation, there is a real possibility that the lower chamber - which is strongly opposed to unfunded tax breaks - could once again reject the proposals, forcing the administration back to the drawing board.

Ominously, Charles Rangel, Chairman of the House Ways and Means Committee, which has jurisdiction over tax legislation, has called the Senate decision to attach tax extenders legislation to the rescue package "an unprecedented gamble."

"If they’re looking to make the rescue package better for families on Main Street, there are many House-passed provisions that would provide immediate relief, such as an extension of unemployment benefits, money for food stamps and help for families struggling to afford heating oil with winter around the corner," he commented following the Senate vote.

"We have a process in the House; we introduce bills, hold hearings, and then markups before reporting to the floor where measures are debated before a final vote. Apparently, in the Senate, they just decide what can get 60 votes and insist the House follow suit," he added.

"As the Chairman of the Ways and Means Committee, I would like to say that all of our members believe this is not the way we should govern, particularly in terms of not paying for extension of current law," Rangel said.

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