Homebuyer Tax Credit Set to Pass Senate This Week

An amendment to extend the $8000 first-time homebuyer tax through June and expand it to include all homebuyers is expected to pass the Senate this week despite recent headlines reporting extensive abuse of the program following an investigation by the Treasury Department.

Senator Johnny Isakson (R-GA) will offer his amendment to extend and expand the popular credit, which also raises income limits to qualify to $150,000 for individuals or $300,000 for couples. Senate Banking Chairman Chris Dodd (D-CT) is a co-sponsor and Majority Leader Harry Reid (D-NV) voiced his support months ago.

The tax credit has fired the housing market, driving existing home sales to the highest level in over two years. The National Association Realtors reported sales jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million units in September and are 9.2 percent higher than the 5.10 million-unit pace in September 2008. NAR credit much of the momentum to the credit, which expires December 1 and estimates the credit will boost sales by about 350,000 this year.

A number of economists have voiced concern about the $16.7 billion.cost of the credit and the wisdom of spending up to $400,000 per homebuyer to stimulate real estate sales. The White House has been lukewarm at best. Last week HUD Secretary Donovan said the administration is not sold on the idea. He said the administration needs better cost estimates. "To truly understand the costs of the credit, we will not know that until Americans have filed their tax returns. We believe it's critical to have the information necessary to make a fully informed decision about the costs."

Yet formal opposition has not materialized in the Senate. The credit has broad bi-partisan support in Congress. Senate Banking Chairman Chris Dodd (D-CT) is a co-sponsor and Majority Leader Harry Reid (D-NV) voiced his support months ago.

Not until the debate begins will it be clear whether there is political fallout from the release of a report last week reporting widespread irregularities the administration of the tax credit. An investigation by the Treasury Department's Inspector General for Tax Administration found that more than 580 children had received $627,000 in first-time homebuyer credits─some as young as four years old─has not derailed a massive lobbying campaign mounted by Realtors, home builders and mortgage bankers. The IRS has identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.

Should the Isakson amendment pass the Senate, it will be difficult to stop. Isakson is planning to offer the tax credit extension as an amendment to legislation extending unemployment benefits, which is sure to pass and has already passed the House of Representatives. Differences between the House and Senate versions will be worked out in a conference committee and returned to each body for an up or down vote. There will no opportunity to vote on specific amendments.