WASHINGTON WEEKLY
Keeping the Markets Informed from the Capital
February 8, 2008
Amended Economic Stimulus Package Ready for President’s Signature
The economic stimulus package is ready for the president’s signature after being amended by the Senate and cleared by the House this week. The $151.7 billion economic stimulus package would provide tax rebates of up to $600 for individuals and $1,200 for married couples, plus $300 for each qualifying child. The final package amended the original House-passed bill, which reflected an agreement between bipartisan House leadership and the Bush Administration, by expanding eligibility for rebate checks to seniors, and to disabled veterans and their survivors. The economic stimulus plan also temporarily raises the conforming loan limits for the government-sponsored enterprises (GSEs) and the Federal Housing Administration (FHA) to a maximum of $729,750.
The Bush Administration's Fiscal Year 2009 Budget released this week features a number of proposals of importance to SIFMA members, including making the current individual tax rates on capital gains and dividends permanent. Treasury Secretary Henry Paulson testified before a number of committees in the House and Senate on the budget proposal this week.
SIFMA joined several trade associations and companies in a letter of opposition to an amendment to the House Higher Education Act reauthorization bill. The amendment, which would have retroactively made private student loans dischargeable five years after payments began, was defeated 179-236.
SIFMA also cosigned a letter to the leaders of the House Ways and Means Committee urging them not to advance legislative proposals that could provide a disincentive for China to allow further appreciation of the Yuan and to restrict, rather than open, its market.
During the Senate Banking Committee hearing on government-sponsored enterprise (GSE) reform, Chairman Chris Dodd (D-CT) said the GSEs must do more to help at-risk borrowers. Dodd said he supports GSE reform and would work to advance legislation.
Economic Stimulus Package Ready for President’s Signature
The Senate voted 91-6 to amend the House-passed economic stimulus package (H.R.5140). The amendment extends rebate checks to individuals receiving Social Security benefits or veterans’ disability or survivor benefits. The amendment also prevents undocumented workers from receiving rebate checks by requiring eligible individuals to have a valid Social Security Number. After approving the amendment to the House-passed bill, the Senate voted 81-6 on the amended package and the House quickly approved the amended bill by a vote of 380-34, sending it to the president for his signature early next week. The $151.7 billion economic stimulus package would provide tax rebates of up to $600 for individuals and $1,200 for married couples, plus $300 for each qualifying child. Individuals with valid Social Security numbers are eligible for the rebate if they have at least $3,000 of earned income, self-employment income, or receive social security benefits or veterans disability income (including survivor benefits). Rebates are reduced for individuals with adjusted gross income above $75,000 ($150,000 for joint filers). The plan also includes a temporary increase in the conforming loan limits for the housing related government-sponsored enterprises (GSEs) and the Federal Housing Administration (FHA) to a maximum of 125 percent of the area median price or $729,750, whichever is lower. The Department of Housing and Urban Development (HUD) will publish the area median price thirty-days from enactment. The FHA would also have the authority to raise the loan limits by up to an additional $100,000 if market conditions warrant. The economic stimulus package would also provide for a fifty percent bonus depreciation deduction on purchases of new equipment in 2008 and would increase the Internal Revenue Code Section 179 expensing limit to $250,000 for one year.
Earlier in the week, the Senate failed to receive enough votes to proceed on a modified version of the economic stimulus package approved last week by the Senate Finance Committee. The modified Finance Committee package, which cost $157.2 billion in FY2008, included an additional $1 billion in funding for the Low-Income Home Energy Assistance Program (LIHEAP) for FY2008, a $5.6 billion package of energy tax extenders, including a one-year extension of the Section 45 credit for electricity produced from renewable resources and a $400 million increase in clean renewable energy bond authority. It also included a provision strongly supported by SIFMA that would have allowed the proceeds from mortgage revenue bonds (MRB) to be used to refinance mortgages and would have also increased the volume cap for MRBs. SIFMA joined a number of state and local government, housing, and industry organizations in a letter urging Senate leadership and Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) to include the MRB reforms in the final economic stimulus bill.
Administration Proposes FY09 Budget
The administration released its $3.1 trillion Fiscal Year 2009 budget proposal this week. The following is a list of some of the provisions in the budget document important to SIFMA members.
- Permanently Extend Reduced Tax Rates on Capital Gains and Dividends: The administration proposes to permanently extend reductions in the individual income tax rates on capital gains and dividends which are currently scheduled to expire on December 31, 2010.
- Extend Subpart F Active Financing and Look-Through Exceptions: The administration proposes to extend the Subpart F active financing and look-through exemptions through January 1, 2010.
- Basis Reporting for Security Sales: Requires certain brokers to report information regarding adjusted basis and holding period information on securities sales to customers and the IRS effective for securities acquired after December 31, 2009.
- Expand the MRB Program to Assist Subprime Borrowers: The administration proposes to expand the mortgage revenue bond (MRBs) program temporarily to allow state and local governments to use MRBs to refinance existing loans to eligible subprime borrowers in 2008, 2009 and 2010. The proposal would increase the private-activity bond volume cap by $15 billion to be dedicated to use for subprime refinancings from 2008 through 2010.
- Expand Tax-Free Savings Opportunities: The proposal would replace existing individual tax-preferred savings and investment accounts (IRAs, Roth IRAs and nondeductible IRAs) with two new tax-preferred savings accounts, Lifetime Savings Accounts (LSAs) and Retirement Savings Accounts (RSAs).
- Consolidate Employer-Based Savings Accounts: The administration’s proposal would combine 401(k), SIMPLE 401(k), 403(b), 457 and other employer sponsored retirement savings accounts into a single type of account called an Employee Retirement Savings Account (ERSA) that would be available to all employers.
- Expand and Make Health Savings Accounts More Flexible: The administration proposes several modifications to the Health Savings Account (HSA) program including allowing individuals to participate in both flexible spending accounts and HSAs at the same time.
- Qualified Tuition Program or 529 Program: The administration proposes to apply the saver’s credit for qualified contributions to qualified tuition programs.
- Eliminate the Volume Cap for Private-Activity Bonds for Water Infrastructure: The proposal would remove certain qualified private-activity bonds issued after December 31, 2008 to finance water and sewage facilities from the annual state volume cap.
For a more detailed list of proposals in the budget, please refer to a memo prepared by SIFMA staff found here.
Testifying before the Senate Finance, Senate Budget and House Ways and Means Committees on the proposed budget, Treasury Secretary Henry Paulson said making the 2001 and 2003 tax cuts permanent protects the country’s economic interests. He said allowing the tax cuts to expire would result in a tax increase of $2.2 trillion over ten years and would have a negative impact on job creation and U.S. global competitiveness. Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways and Means Committee Chairman Charles Rangel (D-NY) criticized the administration’s omission of alternative minimum tax (AMT) reform in the budget proposal. Paulson defended the one-year alternative minimum tax fix included in the proposal. He said fixing the AMT would have to be addressed later in the context of overall economic policy and entitlement reform.
SIFMA Joins Others in Opposition to Bankruptcy Amendment to House HEA Reauthorization Bill
The House approved legislation (H.R.4137) to reauthorize the Higher Education Act this week 354-58. Prior to adopting the College Opportunity and Affordability Act of 2007, the House defeated an amendment offered by Rep. Danny Davis (D-IL) that would have retroactively made private student loans dischargeable five years after payments began. The amendment was defeated 179-236. Currently borrowers can only discharge student loans if they can prove continuing to repay them imposes an “undue hardship.” SIFMA joined several trade associations and companies in a letter of opposition to the amendment. In the letter, the organizations and companies said the amendment would add uncertainty and additional risk to student lending, restrict the availability of credit, and could lead to an increase in interest rates or a reduction in the terms of the loan.
SIFMA Signs Joint Letter Cautioning Against China Currency Legislation
SIFMA joined a number of companies and organizations in a letter urging the leaders of the House Ways and Means Committee to carefully consider the merits, shortcomings and potential effects before acting on pending legislative proposals to address bilateral trade concerns. The signatories acknowledge while China has become one of the largest customers for U.S. goods and have cut their tariffs in half, major trade challenges remain. The organizations said to best address these challenges, the United States must use all appropriate mechanisms, including aggressive diplomacy and enforcing the rules of trade. The organizations warned that pending proposals, such as the proposed imposition of countervailing or antidumping duties, could provide a disincentive for China to allow further appreciation of the Yuan and to restrict, rather than open, its own market. The organizations and companies urged the Committee not to take action that could diminish U.S. competitiveness.
Dodd Says GSEs Should Do More to Help Subprime Borrowers
During the Senate Banking Committee hearing on government-sponsored enterprise (GSE) reform, Chairman Chris Dodd (D-CT) said the GSEs must do more to help at-risk borrowers move into safer, more affordable, and “stable” products. Dodd said he supports GSE reform and will help develop a balanced bill which will create a single regulator with sufficient authority and independence to effectively oversee the GSEs. Ranking Member Richard Shelby (R-AL) said he is concerned the current low capitalization level for the GSEs leaves little room for safety and soundness in an extended volatile housing market. Shelby said he is disappointed the economic stimulus package contains an increase in the GSE conforming loan limits despite Treasury Secretary Henry Paulson’s assurances that he would not support an increase in limits without comprehensive reform. Shelby was concerned whether the current issues in the bond insurance industry would have a significant impact on the mortgage holdings of the GSEs. Dodd said he and Shelby are working on a letter to the Treasury Department asking if any measures should be taken as a result of recent events in the bond insurance industry.
Bills Introduced This Week
Rep. Jon Porter (R-NV) and Rep. Allyson Schwartz (D-PA) introduced legislation (H.R.5239) which would temporarily expand the mortgage revenue bond (MRB) program to allow the proceeds to be used to refinance existing loans to assist eligible subprime borrowers. The bill would exempt MRBs from the alternative minimum tax (AMT). H.R.5239 would also increase the private-activity bond volume cap for MRBs by $15 billion through 2010. The additional volume cap would be limited to MRBs used to refinance eligible subprime loans and could be carried over for two years.
The Week Ahead
- On Monday, February 11, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit will hold a field hearing in New York City on the effects of problems in the subprime mortgage market on New York City.
- The Senate Banking Committee will markup Industrial Loan Companies (ILCs) on Tuesday, February 12.
- The House Financial Services Committee will hold a hearing on the Community Reinvestment Act on Wednesday, February 13.
- Also on February 13, Jim Nussle, Director, Office of Management and Budget, will testify before the House Ways and Means Committee on the administration’s FY09 budget proposal.
- Treasury Secretary Henry Paulson will testify before the House Budget Committee on Wednesday, February 13.
- The House Financial Services Subcommittee on Capital Markets will hold a hearing on the state of the bond insurance industry on Thursday, February 14.
- Also on February 14, the Senate Banking Committee will hold a hearing on the state of the economy. Treasury Secretary Henry Paulson, Securities and Exchange Commission (SEC) Chairman Christopher Cox and Federal Reserve Board Chairman Ben Bernanke have been invited to testify.