Jassen Bowman

I just got done reading the 110 page EESA that passed the U.S. House today. I highly encourage people to read it themselves, rather than listen to the B.S. and hype from the media. Perhaps more important than the EESA itself is the 320+ pages of PORK attached to it. Congress at it's finest. I haven't read the pork yet, but I'm going to write this blog post as I skim the pork, and will report on what gems I find within.

First, the entire bill is here:

http://financialservices.house.gov/essa/essabill.pdf

The government's own summation of the sections, in only 6 pages (worth reading if you're not going to read the whole thing):

http://financialservices.house.gov/essa/eesabill_section-by-section.pdf

To start, let's go over the gist of what the EESA does.

Follow up:

In short, the bill creates a bunch of new committees, boards, an Inspector General position, and whatnot, to facilitate the Treasury Department (e.g., Secretary Paulson) to purchase certain types of securities from financial institutions. Most of these securities are mortgage-backed securities, secured by residential real estate. The idea behind this is to get bad assets off the books of the banks, so that they can move forward and not be weighed down by...their own stupidity. The program is called TARP: Troubled Asset Relief Program. This is the bailout portion you hear about on the news.

The Secretary of the Treasury is given $250 billion initially to start sucking up these failing assets. After a while, he can ask for $100 billion more. If that's still not enough, Congress can be asked to approve or disapprove an additional $350 billion. There's a time limit to the Secretary spending this money, which is December 31, 2009. So, at least there's an end to it.

In addition to the bailout, the bill provides for the creation of an insurance program, whereby financial institutions can obtain insurance against the failing of bad assets that the government doesn't actually buy. The banks have to pay market-based insurance premiums to buy this insurance.

The Treasury is required to assess the long-term viability of a bank before offering to buy assets or extend insurance. The bill also requires the "minimization" of impact on the national debt, the markets, communities, etc.

The rest of the bill:

• sets out all the requirements for the new boards and committees to report to Congress

• the requirements for sales of assets

• sets limits on senior executive compensation and golden parachutes

• sets requirements for judicial review

• creates an Inspector General to oversee the program in an effort to prevent waste, fraud and abuse

• "improves" tools available to prevent foreclosure

• allows the SEC to suspend market-to-market accounting rules

• increases FDIC insurance limits to $250,000 until Dec. 31, 2009

• extends the provision for the exclusion of forgiven mortgage debt form income taxation

Buried deep within the bill, in Section 123, is a provision to raise the legal cap on the national debt to $11,315,000,000,000. That's TRILLIONS, in case your eyes got all wigged out by the numbers. See, this bill is going to be so expensive that the current national debt limit, standing at $10 trillion, maxes out the government's line of credit. Yes, this ENTIRE bill is going to be operated on debt financing. Lovely, eh?

Now, for the pork.

The first rider on the bill is the Energy Improvement and Extension Act of 2008. This bill provides incentives in the form of tax breaks for renewable energy, such as tax credit for small wind projects, residential energy efficiency, and geothermal heat pump installation. In addition, the bill provides a bunch of credits for advanced coal projects, such as gasification, carbon sequestration technologies, and a temporary increase in the coal excise tax (which will increase energy cost to the consumer). The bill creates or extends many tax credits and incentives for biofuel production, alcohol fuel production and vehicles, creates tax creates for all-electric vehicles, and creates a transportation fringe benefit for bicyclists. Many home and business energy credits that were set to expire this year have been extended another year to several years. Many good things all around here. Too bad it couldn't have passed on it's own.

One very interesting change I just noticed is that, in the reporting of broker exchange transactions, the broker is going to have to be required to report the adjusted basis of the security to the client, and the IRS. If I read this right, this now means that your 1099-B after the sale of a stock is actually going to have basis information on it. For a tax preparer, this is going to remove a huge headache when it comes to reporting these transactions on a Form 1040, Schedule D.

In addition, payroll taxes in the form of unemployment taxes, subject to the 0.2% FUTA surtax, has been extended another year.

The third major chunk of pork attached to this bill is the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. This act primarily extends the expiration date for a ton of personal and business tax credits that were otherwise set to expire. In general, they are good things. In addition, the AMT trigger was adjusted by a few thousand dollars, which will help some middle class taxpayers from falling into the AMT trap.

Other tax extensions of note from this bill:

• Deduction for state and local sales taxes was extended until 2010

• Deduction for qualified tuition was extended until 2010

• Extension for additional year of extra deduction for real estate taxes for standard deduction users

• Teachers can deduct some supplies for classroom use for a few more years

• IRA distributions donated to charity are tax-free for a couple more years

For businesses, the list is even longer. There are some humorous examples that I can't help but point out:

n the excise tax on rum from Puerto Rico

• Deduction on income earned in Puerto Rico

• Extension of credit for railroad track maintenance

• Extension of 7-year depreciation timeline for racetracks

• Tax incentives for development in the District of Columbia

• Reduction of the import duty on wool. Yes, wool.

• Extension of special deduction rules for film and TV production.

• Elimination of excise tax on wooden target arrows under 5/16" diameter.

An $8,500 income threshold was created for calculation of the Child Tax Credit. The penalty assessed against tax preparers for taking a bad position in preparation of a return was increased to $1,000. Significant changes were made to ERISA in regards to mental health and substance addictions coverage to create parity in benefits to recipients. Counties that contain Federal lands and receive payments from the Federal government for projects on these lands are about to get a raise.

This is a long bill...yikes. Towards the end, it includes tax relief provisions for victims of Hurrican Ike.

Page 451. At last. Wow.

More than anything else, this document changed the termination dates on a LOT of sections of the Internal Revenue Code. Therefore, I'm going to actually file this under "taxes" here on the blog.

And with that, good night. It's been nearly 3 hours of reading. I really must have too much time on my hands!

-Jassen Bowman