The leaders of both the House and Senate are exploring options for an economic stimulus plan they would unveil if the economy continues to weaken in 2008, TaxVox has learned. The talks, still in their early stages, could trigger a major election-year battle over fiscal policy. While neither party has settled on a plan, congressional Republicans are likely to propose new tax breaks as well an extension of the 2001 Bush tax cuts. Democrats are looking at a mix of tax cuts and other measures that they'd attach to targeted relief for those hardest hit by the mortgage mess.

In the aftermath of Sept. 11, 2001, Congress created a program in which taxpayers would backstop private insurance in the event of another major terror attack. The program, called the Terrorism Risk Insurance Act (TRIA), was supposed to be a temporary effort to both stabilize the insurance industry and prevent a broader economic meltdown after insurers stopped writing property and casualty coverage for many urban commercial developments.

"Creditors would be prohibited from … extending credit without considering borrowers' ability to repay the loan." This is not a joke. It is part of proposed new Federal Reserve Board regulations aimed at stopping banks from repeating the shockingly bad lending practices that led to the still-worsening mortgage mess. Perhaps they could call the new rule "stop me before I lend again."

A December 10 Wall Street Journal rant against PAYGO asserts that the AMT is careening out of control because "Democrats who designed it failed to index it for inflation and raised AMT rates under Bill Clinton in 1993." To be sure, indexing the AMT exemption would have kept millions of taxpayers out of its clutches but blame for that oversight lies with many Congresses and administrations. Never in the tax's 40-year existence has either Congress or the president seriously tried to permanently index the AMT. And the decision in 2001 to cut regular income taxes without also reducing the AMT has played a huge role in AMT's growth.

Late last night, the Senate passed, by a vote of 88–5, a one-year increase in the AMT exemption without the offsetting tax increases in the version that passed the House. The rejected House version would take ten years of small tax increases to pay for a one-year AMT patch, leaving open the question of how to pay for next year's patch, but at least that bill follows the letter of the PAYGO rules. The Senate bill is an outright $50 billion tax cut.