WASHINGTON — Lawmakers are trying to extend and expand an $8,000 federal tax credit for first-time homebuyers, a stimulus-package tax break that many regard as a significant prop for the still-tottering economy.
The latest Senate proposal would drop the requirement that the credit be available only to first-time buyers, broadening the reach of the program but also adding to its cost, estimated by congressional analysts at $16.7 billion.
The backers of that idea, Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., chairman of the Senate’s banking committee, have suggested that their measure be attached to another pending bill aimed at throwing a lifeline to people hit by the recession, an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.
While the White House says there will not be a second stimulus package following the $787 billion economy booster enacted last February, extending the homebuyers’ credit and unemployment benefits are among several primary means being pushed by the administration or Congress to help people get through the prolonged economic downturn.
Others include continued subsidies for laid-off workers trying to keep their health insurance and a proposal by President Barack Obama to provide seniors and others with a $250 payment to make up for the lack of a Social Security cost of living increase next year.
The stimulus-package credit allows first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. The credit, which could cost in the $12-15 billion range this year, is set to expire Dec. 1.
The Isakson-Dodd proposal would extend the credit to June 30, 2010. It would also remove the first-time homebuyer requirement and raise the eligibility income limit to $150,000, or $300,000 for a couple. That’s double the current phase-out limits.
As with the Cash for Clunkers program for cars, skeptics have questioned whether the credit will have any long-term effect on the housing market.
Brookings Institution economist Ted Gayer wrote in a recent report that the tax credit is “very poorly targeted.” He calculated that of the 2 million or more people who would make use of the credit if it were extended for a year and expanded to cover all buyers, only about 383,000 would be additional sales motivated by the credit. He estimated that the real cost of the credit would thus be more than $40,000, rather than $8,000, per buyer.
But believers say it has been instrumental in sustaining an economic recovery highly dependent on housing.
The National Association of Home Builders, the source of the 383,000 figure for increased home purchases, pointed out that this would also create more than 347,000 jobs, generate $16.1 billion in wages and salaries and $12.1 billion in business income.
“Homebuyers for the past two years have been sitting on the fence and we needed something to move them into the market,” said Lucien Salvant, managing director for public affairs at the National Association of Realtors. With more foreclosures coming next year, “to knock the props out of the housing market at this point would not be a wise move.”
The NAR, together with the NAHB and the Mortgage Bankers Association, have been running ads in the Washington area urging Congress to extend the homebuyer tax credit.
They note that home sales to first-time buyers have increased by 25 percent in 2009 and now account for 50 percent of all sales. They add that first-time buyers are often at the lower end of the market and the tax credit is reducing the inventory of foreclosures.
Isakson, in a speech on the Senate floor this week, said lawmakers owed it to the country to extend “a proven program that works” and “buoy the marketplace.”
He said that if the program is allowed to expire, the market again will depress values, sales and consumer confidence.
Senate Democratic leaders have not decided whether the homeowners’ credit issue should be part of the unemployment bill. But there is powerful backing for taking it up in some form.
House Speaker Nancy Pelosi, D-Calif., said last week that she is looking into extending and expanding the popular tax credit, which according to IRS data has so far drawn more than 1.4 million applications from first-time homebuyers.
Senate Majority Harry Reid, D-Nev., last month joined Sens. Ben Cardin, D-Md., John Ensign, R-Nev., Debbie Stabenow, D-Mich., and Isakson in introducing a bill calling for a straight six-month extension of the tax credit.
The potential addition of the Isakson-Dodd proposal to the unemployment benefit bill would be a new element to a bill that the Senate is already trying to enlarge.
The House last month passed legislation to increase jobless benefits by 13 weeks, but only in those 27 states where the unemployment rate is at or above 8.5 percent.
That left lawmakers from the other 23 states unhappy, and last week Senate Democrats reached agreement on a bill that would give an additional 14 weeks of benefits in all 50 states, and another six weeks on top of that to those in states with the 8.5 percent unemployment rate. The national unemployment rate is 9.8 percent.
Currently, a laid-off worker in a high unemployment state is entitled to up to 79 weeks of state and federal assistance. The average payment is about $300 a week. Supporters of the extension say it is necessary in an economy where 15 million unemployed are competing for 3 million jobs.