The House reversed course today and voted to adopt the expanded Treasury bailout package by a vote of 263-171.

As S-Corp readers know, the Senate took the original Treasury plan, added the tax extender package, some hurricane relief, and a temporary boost in FDIC insurance levels, and passed the broader legislation 74-25 on Wednesday.

Fifty-seven members of the House switched from No to Yea today. The package is now law. The President signed it as soon as the bill traveled sixteen blocks up Pennsylvania Avenue.

So how will this impact S corporations? While we prefer to give our readers frank, direct answers to tough questions, the reality is we don’t know. Here’s how it breaks down:

S Corp Charitable Provision: Positive. This provision was part of the extender package, and is now extended through the end of 2009.

Deficit Impact: Negative. Deficits are going up. Next year’s deficit will likely be in the $600 billion range, or about 4 times the deficit in 2007. Higher deficits mean increased pressure on Congress to raise taxes. The Treasury plan will likely make the deficit worse.

How much? A CBO summary of the plan concludes, “That net cost is likely to be substantially less than $700 billion but is more likely than not to be greater than zero.” So somewhere between $700 billion and zero. Great.

It’s hard to blame the CBO, though. The challenge of valuing these assets is one of the reasons for the bailout. New analysis of the Bear Stearns acquisition does a nice job of highlighting the challenge of valuing these troubled mortgages and the securities based on them. As Bloomberg reports:

The valuation of the $12 billion of Alt-A mortgages varies by as much as $5.4 billion depending on whether the analysts use estimates that Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. or Morgan Stanley apply to their own portfolios, the analysts wrote.

The Treasury plan should help clarify the value of these assets, but it does so by shifting risk from the financial community to the taxpayer. Just how much that risk will cost us is the $700 billion question.

Economic Impact: Positive. The Treasury plan is viewed by the credit markets as necessary, but insufficient by itself, to reverse the declining economy. We were facing a cyclical slow-down coupled with a credit crisis. The Treasury plan helps address the latter, and to the extent it’s successful, it will help make the pending recession less severe and less lengthy.

So the net impact on S corporations and the small business community is mixed. Higher deficits mean higher taxes, while healthier credit markets mean a shorter, shallower recession.

Congress returns November 17th to consider several smaller items. Depending on how the economy fares, it may need to consider additional provisions to help the economy. We are confident that a $700 billion plan drafted and enacted in 14 days will need some refinements. Hopefully, that’s all Congress needs to do.