Today TaxMama sits here, scouring the news sites for tangible information about the Legislature’s voting over the weekend. What’s the final score on the $700 billion bailout? What else went down while we were caught napping?
First of all, the California NATP banquet and festivities were interrupted on Friday evening, with all the attendees glue to their seats, watching the Presidential Candidates’ debate on Carol Thomas’s big-screen laptop. (Great picture.)
It was clear that neither candidate had contributed one original thought or helpful idea to help with the bailout issue. If they can’t come up with their own ideas, why hasn’t either candidate tapped Aaron Sorkin and his “West Wing” team? They did brilliant work in the television series presenting legislation and solutions to problems. https://www.imdb.com/title/tt0200276/ – and wrote THE most powerful speech for Michael Douglas in The American President. https://www.imdb.com/title/tt0112346/ Or Gary Ross, who wrote Dave https://www.imdb.com/name/nm0002657/ ? Ross came up with very sensible fiscal solutions – delivered by the schleppy CPA played so well by Charles Grodin.
Which brings us to the bailout. Consider reading it. Florida Enrolled Agent Steve Odem sent me the link to last night’s House Committee on Financial Services press release, with links to the new bailout bill, called the Emergency Economic Stabilization Act of 2008 (EESA). https://www.house.gov/apps/list/press/financialsvcs_dem/press092808.shtml
If you read the summary, you see insurance for companies with troubled assets; homeownership preservation – providing HOPE with tools to help homeowners keep their nearly defaulted homes; taxpayers sharing in Wall Street’s profits and windfalls via warrants giving the Feds a share of the profits, without effectively nationalizing the businesses; it cuts golden parachutes for executive and requires unearned bonuses to be returned and limits executive compensation; it doles out the funds over time, giving the Legislature veto power over the next two installments – and establishes a special inspector general to protect against waste, fraud and abuse.
Let’s look just a little deeper, shall we, at the provision for executive compensation that seems to provide such powerful safeguards. That’s Section 111 in this bill. Let’s look at the Section-by-Section Summary – https://www.house.gov/apps/list/press/financialsvcs_dem/final_bill_section-by-section.pdf (see page 3)
“Where Treasury buys assets directly, the institution must observe standards limiting incentives, allowing clawback and prohibiting golden parachutes. When Treasury buys assets at auction, an institution that has sold more than $300 million in assets is subject to additional taxes, including a 20% excise tax on golden parachute payments triggered by events other than retirement, and tax deduction limits for compensation limits above $500,000. “
Wow! And I was willing to allow up to $2 million in compensation for the executives. It looks like the Legislators are tighter than I am. Or are they?
Oops. There’s just a limit on the tax deduction for compensation. Not on the compensation itself.
buy finasteride online pmilv.com/wp-content/languages/new/cheap/finasteride.html no prescription
Companies can still pay $20 million. They just won’t get a deduction for it – and the company will have to pay higher taxes – the executives won’t be paying the taxes on behalf of the company. It will simply reduce the shareholders’ dividends.
OK, let’s look at the wording of the actual Section 110. See page 30 onward.
First of all, the standards are only good for the duration of the Secretary’s interest in the assets or equity of the company.
There is a position requiring the executives to pay back any bonuses based on in accurate financial reports.
There are to be no golden parachute payments. These provisions only apply to the top 5 executives of the company. Other executives can continue to receive excessive compensation.
There is no requirement that they pay back ANY compensation received that brought us to this crisis. They get to keep the millions of dollars in salaries, stock options, bonuses, etc. Congress didn’t have the guts to insist that before bailout money was provided, those executives who benefited, even those who received Golden Handshakes, would have to return their bonuses and benefits.
The rules are effective two months from the date that the Secretary issues specific guidelines. In other words, the companies can get their money now and go on a wage feeding frenzy until the Secretary issues rules. And the authority will expire on December 31, 2009 – what is that? Barely ONE year? They get to waive their incomes for only one year? Wow. I am quaking in my financial boots. Whew. (Congress may extend the authority for two more years.)
This was neither a masterful stroke of wisdom nor leadership on anyone’s part.
It was obvious that this problem was coming, years in advance. There was plenty of time to fix the problem, at no cost to the government or stockholders. The only three things the government had to do was
- 1)Put a stop to the sub-prime loan frenzy – and set guidelines on qualifications for borrowing.
- 2)Put clear disclosures on the packaging of loans so that investors were provided with the real risk factors of the loan packages they were buying.
- 3)Insist that the owners/packagers of the loans they sold must renegotiate the loans with the borrowers so they could afford to keep the homes they’d bought – without ending up in foreclosure. The houses wouldn’t have hit the market, bringing the real estate market down.
The loan packages would have been worth less, not worthless. Investors would have lost some money – not all. We’d be fine now.
I still don’t see those kinds of specific details in the Bill. Do you?
Well, here’s the link to the whole bailout bill. Please read it yourself and give us your impression and feedback. I only touched on a small part of the Emergency Economic Stabilization Act of 2008 (EESA).
And remember, you can find answers to all kinds of questions about financial legislative issues and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- House Committee on Financial Services press release :: Emergency Economic Stabilization Act of 2008 (EESA).
- Emergency Economic Stabilization Act of 2008 (EESA). :: Section-by-Section Summary
- Emergency Economic Stabilization Act of 2008 (EESA). :: The full bill – read the full text.
- The West Wing – TV Series :: written by Aaron Sorkin and his team
- The American President :: written by Aaron Sorkin and his team
- Dave – the movie :: written by Gary Ross