While the final details are still being negotiated, key Democratic senators have reached general consensus on extending and expanding the $8,000 Homebuyers tax credit which has been doggedly pursued by Georgia’s Senator Johnny Isakson.
“We’re close, we’re close but I can’t get into any details until it’s a done deal,” said Republican Senator Johnny Isakson.
The popular tax credit, which has helped lift the housing market out of its worst slump since the Great Depression, is set to expire on Nov. 30.
Dodd and Isakson want to extend the credit through June of next year and broaden it to anyone buying a primary residence, not just first-time buyers.
Senate Majority Leader Harry Reid had backed a narrower version which would extend the full credit through March and gradually phase it out through the end of 2010.
Dodd said that the deal would merge the two proposals.
Isakson has been pushing an expanded tax credit since the mortgage market collapsed as a way to stabilize home prices while the financial system regained its footing. Isakson, a realtor by profession, is often quoted as remembering how a similar program in 1973 helped the market absorb an even greater supply at that time.
By adding temporary stimulus to absorb excess supply created by both over building and record foreclosures, the goal is to stop the spiral of unsold homes going into foreclosure, which depresses prices, which causes more borrowers to have negative equity in their homes, which leads to even more forclosures.
The Obama administration originally looked at Isakson’s plan as competing with their ideas of what should be stimulus, and had the tax credit cut from multiple bills. Democrats seeing unemployment over 10% – significantly over their worst case scenario given when passing their stimulus bill – are nervously approaching mid-term elections and have been quietly searching for new ways to add a second stimulus.
Isakson’s credit expands the 8,000 credit to the critical “move up” market, with no first time buyer requirement and income caps at $150,000 (single) or $300,000 (married), a large portion of those who have been on the sidelines for fear of market conditions may be persuaded to re-enter the market.
The bill has been revised over time to correct potential flaws noted by critics, including the IRS and Congressman John Lewis, who discovered significant instances of fraud in the existing application of the tax credit. The bill also maintains language that prohibits transfers to related parties, and requires a holding period of 2 years to discourage “flipping” to become more common.
If passed, this will result in another significant win for Isakson on a bill where he was told he had no chance to pass. Isakson previously took on his own leadership and the Bush White House to work out a solution allowing Delta Air Lines to restructure its pension program to avoid default and taxpayer bailout. In the end, he generated 70 co-sponsors and the blessing of President Bush. Delta retirees and employees kept their pensions, and the taxpayers weren’t out a dime.
With the homebuyer tax credit, Isakson hopes for a similar effect. With the Federal Government now estimated to be backing almost 70% of the nations mortgage loans, and trillions more liabilities insuring shaky banks with struggling real estate portfolios, he is using a Reagan style tax cut to boost consumer activity that will ultimately net the treasury more money (via reduced loan losses and increased economic activity) than if nothing were done at all.