Emergency Economic Stabilization, Energy Improvement and Extension, and Tax Extenders and AMT Relief Acts of 2008

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Emergency Economic Stabilization, Energy Improvement and Extension, and Tax Extenders and AMT Relief Acts of 2008

On October 3, 2008, Congress passed and President Bush signed H.R. 1424, Emergency Economic Stabilization, Energy Improvement and Extension, and Tax Extenders and AMT Relief Acts of 2008, into law.

Senate Finance Committee Chairman Max Baucus (D-Mont.) said that Congress has “done its job” as the House of Representatives approved the Emergency Economic Stabilization Act of 2008 – a financial rescue plan that will allow the U.S. Treasury to purchase bad assets threatening the solvency of American financial institutions.

The following is a summary of the tax provisions of the law.

Tax Relief Promoting Jobs, Energy, Families

The financial rescue plan contains the entire text of H.R. 6049 as amended by the Senate on September 23 – including

  • Clean energy tax incentives,
  • Alternative minimum tax relief,
  • Extensions of expiring business and family tax cuts,
  • Disaster relief,
  • Mental health parity, and
  • Other provisions.

The Senate amended H.R. 6049 with two measures – one containing energy tax incentives and the other containing all remaining provisions. The combined cost for all measures – energy, AMT, “extenders,” and other provisions – is approximately $150 billion, and the offsets in the package total approximately $43.5 billion. Energy provisions are completely offset, and “extenders” and other provisions are partially offset. Of the total cost, $64.1 billion is unoffset AMT relief. Both the House and Senate have previously passed unoffset AMT relief this year.

Help for Homeowners Sinking Under Mortgage Debt

Usually, when homeowners have parts of their mortgages forgiven, they immediately owe income taxes on the amount of indebtedness forgiven. To keep struggling homeowners from facing higher tax bills, the housing relief bill passed by Congress this year allowed homeowners caught up in the mortgage crisis to avoid paying tax on forgiven mortgage debts through 2009. To help more homeowners stay on their financial feet in the ongoing economic crisis, the rescue plan will extend through 2012 the housing bill provision that forgives income from the cancellation of indebtedness. It does not extend the relief to home equity loans.

The package of tax relief added to the overall bill also includes an extension of the Baucus authored standard property tax deduction for American homeowners who do not itemize on their Federal taxes. An estimated 71.8 million American homeowners who pay property taxes to their State and local governments, but only 43.5 million receive a Federal tax deduction for those taxes – those who itemize on their annual returns. The “Non-Itemizer Real Property Tax Deduction” provides a standard deduction – $500 for single filers and $1,000 for joint filers – to reach 28.3 million American homeowners who deserve property tax relief.

Stronger Taxation of Compensation and Severance Pay for Financial Executives

The financial rescue plan contains non-tax measures aimed at limiting executive compensation and “golden parachute” severance packages overall for companies and executives participating in the buyout – a key element in gaining approval of the package among negotiators. When the Treasury directly buys assets from a company, not through an auction or bidding process, the financial institution will be required to meet certain standards for executive compensation, including a total prohibition on “golden parachute” severance payments to senior executive officers.

When more than $300 million of a company’s assets are purchased by the Treasury through an auction, “golden parachute” payments will be banned for top executives hired while the Treasury rescue is in effect and terminated for any reason, or in the case of bankruptcy, insolvency, or receivership of the financial institution. Additionally, tax provisions will kick in to strengthen the tax treatment of remaining executive compensation and severance packages. The deductibility of executive compensation for companies will be cut in half from the level in current law, and companies will also lose deductions currently available for excessively large severance packages. Executives receiving severance packages will continue to face a 20 percent excise tax on payments once they reach an excessive threshold, and that tax will now be due if the executive leaves for reasons other than a standard retirement for which they are eligible – not just if the company changes hands, as in current law.

Source: Senate Finance Committee

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