Various items of tax news are worth noting.
1) Ways and Means
Republicans named Dave Camp (R-Mich.) as ranking member on the House Ways and Means Committee. Free Press, Washington, Dec. 10. Meanwhile, according to BNA's Daily Tax RealTime, the Democrats' Steering and Policy Committee nominated Danny Davis (D-Ill.), Bob Etheridge (D-N.C.), John Yarmuth (D-Ky.), Brian Higgins (D-N.Y.), and Raul Grijalva (D-Ariz). In addition, there may be a need to nominate a replacement for Becerra, who has been nominated as U.S. Trade Representative.
2) Offshore Reinsurance Scams
The Senate Finance Committee is proposing revisions to the treatment of offshoring of reinsurance to related parties. See Finance Staff Discussion Draft (disallowing deduction for "excess" nontaxed reinsurance premiums, with a proposed Dec. 31, 2008 effective date) and Technical Explanation of Staff Discussion Draft.
3) The Auto Bailout (or not)
The auto bailout is becoming a farce. We're giving multiple tens of billions to many banks and insurance companies--$50 billion to Citi, $40 billion plus to AIG, $25 billion to JPMorgan Chase, even $10 million to supposed gold star investment bank Goldman Sachs. The three auto companies together think they need about $30 billion to continue operating, and many economists think allowing the auto industry to be liquidated would be disastrous for workers (though admittedly not the Friedmaniacs who want the real industry to fail so unions are decimated).
But the bailout package for the auto industry, the Auto Industry Financing and Restructuring Act, is a mixed bag with too much and too little.
- It does not use the TARP funds. Instead, apparently at Bush's insistence, it provides only $14 billion for loans at an initial 5% rate, with the funds coming in large part from funds already intended for development of improved technology vehicles.
- Can't Congress ever do anything without a big tax break in it for banks or somebody similar? The bailout includes crazy tax provisions like a section 382 giveaway (yeah, the same one invalidly permitted to banks by Treasury) and a ridiculous government guarantee for a transit lease shelter (the illegal SILO deals)--in other words, the bill would have the government serve as the guarantor to the users of these tax shelters now that they have been declared illegal. That's mostly banks Baucus has said he won't vote for the bill on that basis alone, and that may lead to Senate amendments that would take that absurd provision out of the bill.
Grassley yesterday called the provision “offensive” and said it would have the “perverse” effect of having the federal government ultimately pay off the users of the tax shelter, known as a sale-in-lease-out, or SILO. “Senator Grassley and I shut down their tax loophole, and now the banks want to sue the transit agencies to make their money anyway,” Baucus said today. “That’s wrong -- but paying the banks off with federal dollars is not the right way to respond. Congress must not let these banks game the system further and siphon more cash off taxpayers.” Donmoyer, Baucus Says Tax Provision in Bill Must Be Stripped, Bloomberg.com, Dec. 10, 2008.
- It calls for warrants the voting power of which won't be exercised, yet it creates a car czar--a presidential designee with incredibly strong powers to review auto business records and oversee executive compensation standards. The GOP apparently thinks the czar doesn't have enough power (funny that they didn't insist on any kinds of real oversight for the banks)--and apparently want equivalence of bankruptcy restructuring capabilities (including, I suspect, rewriting union contracts).
- The bill does set terms that the TARP bill obviously should have included (no bonuses for top 25 executives, no dividends etc.).
- Sillily, it requires the auto companies to divest themselves of any privately owned aircraft--come on, folks, I know we all thought the CEOs should have known better than to fly their private jets to DC to plead for help. But it is also a rather petty part of the problem that they own private jets, for which there may even be business efficiencies. Couldn't Congress have enacted a CAFE standard that made sense, or one of the many other much needed modernizations of auto manufacturing, rather than focusing on such a petty thing as whether the company owns a private jet? After all, it will likely cost them a good bit to sell those jets into a sinking economy.
- Finally, the law includes a provision that prevents the government from using TARP funds to assist the companies, making this limited assistance the only thing that can be done by the executive without coming back to Congress and getting another bill passed, which would likely be too late to help the companies stay in business.
The House passed the bill and sent it along to the Senate. See John Hughes, House Approves Automaker Bailout, Sends to Senate, Bloomberg.com, Dec. 10, 2008. But it looks like the Senate Republicans are intent on sending the Big 3 to bankruptcy and getting rid of the UAW once and for all. See the Bloomberg story, above; Hughes and Faler, Auto Bailout Hits Senate Snag, Bloomberg.com, Dec. 10, 2008; and Montgomery and Branigin, Vote on Auto Bailout in Limbo as GOP Resists Measure, Washington Post, Dec. 10, 2008. This would have been an excellent opportunity to move these important manufacturing centers in a new direction more in line with the public interest while taking aggressive action to set new CAFE standards to make inroads on our carbon footprint and to save millions of jobs. Too bad Congress isn't up to the task.
4) Tax Legislation, anyone?
Can we expect decent tax legislation out of a new Congress? It is worrisome. First, there's the Illinois corruption scandal, where Governor Blagojevich was apparently attempting to sale (or takeover for himself) a Senate seat. Rep. Jesse Jackson Jr. is identified as Senate aspirant No. 5 in the disgusting scandal. See Slevin and Lyderson, Jesse jackson Jr. May be Tied to Blagojevich Probe, Washington Post, Dec. 10, 2008. Then there's Max Baucus, who doesn't seem to be on board with the progressive changes that the voters opted for. Bloomberg notes today that Baucus is letting it be known that he is not sure that he wants to increase rates on the top income earners.
5) Credit-Default Swaps
Not a tax issue, i guess, but i can't help noticing that Goldman, recipient of taxpayer bailout funds, is advising investors to bet against states in the credit default swap market. See this story on Bloomberg.com.
6) What's next? Devaluation of the Dollar?
Cafe Americain has an interesting discussion of the Federal Reserve's bid to issue its own debt, here. Interesting reading, at the least.