Strike Out Despite intense lobby efforts, Congress waters down the home buyer tax credit in the stimulus package.
President Barack Obama's signature sound bite in pitching the biggest government program since the New Deal was: Don't make perfection the enemy of the absolutely necessary.
As details of a compromise $789.5 billion stimulus plan continue to emerge, it's already clear that a Senate-backed plan to fund a jolt to home-buying demand with a 10 percent—up to $15,000—tax credit for home purchases over the next year failed to make the cut as “absolutely necessary.”
As executive director of the Fix Housing First coalition of companies, Kenneth Gear led a concerted charge to make a shock-and-awe home-buying stimulus program part of the package that Congress would hand over to the President by Monday, Feb. 16. Hardly surprising, Gear was crestfallen when the proposed tax credit was reduced to an $8,000 first-time home buyer credit that would be effective until Dec. 1, 2009. The two main differences between this credit and the one instituted last July are that the latest version is slightly bulkier and includes a no-repayment provision.
Gear could not hide his disappointment. “First off, we're hopeful that this bill [the one Congress has cobbled together] will stimulate the economy, but we have some doubts it will,” he said. “It still doesn't get to the root cause. The market's still in a free fall. It's not going to stop the vicious circle of home price declines, because you're not giving enough of an incentive to spur demand.”
Wachovia Securities housing analyst Carl Reichardt summed up the impact of the no-repayment provision:
“The House version is essentially the same bill that was included in July's stimulus plan (the Housing Economic and Recovery Act of 2008) except that it removes the requirement to pay the government back. While this is a marginal positive over the plan established before the stimulus as it turns the credit into a gift versus a tax-free loan, we believe the Senate's credit would have been much more impactful to unit demand given its size and its applicability to all home buyers, not just first-time buyers.”
Gear said, “We're not folding up our tent.” He pointed to generalized verbiage in U.S. Treasury Secretary Timothy Geithner's remarks Tuesday, Feb. 10 that referred to a “comprehensive program” to address the housing crisis. This would include foreclosure mitigation and, Gear hoped, a mortgage interest rate buy-down program for home buyers. However, that flicker of hope appeared to be short lived. At press time, newspaper reports cited that the program had been shelved.
Not included in Fix Housing First's agenda was a push to extend net operating loss tax provisions' look back period from two years to five years to allow companies to carry present losses back to prior-year profits to recover taxes paid. That push flopped as well, as the new extended carry back was limited to small companies doing less than $5 million in revenue. —John McManus