Oct. 29, 2009 -- If plummeting home prices and low interest rates have not brought a home buyer into the market, lawmakers are hoping a $10 billion expansion of a temporary tax credit will.
With a popular first-time home buyer's tax credit set to expire Nov. 30, it would be the third incarnation of the incentive.
In 2008, Congress passed a $7,500 tax credit first-time buyers. But it had to be paid back over time.
The program was expanded to an $8,000 credit as part of the stimulus in early 2009, and the money no longer had to be paid back.
Now, senators want to extend the current $8,000 credit for first-time buyers as well as open it up to existing home owners who have lived in their current home for five years or more, making them eligible for a $6,500 credit.
But despite the credit's past two reinventions, don't look for another expansion after this one.
"This is the last extension of the home buyer's tax credit," said Sen. Johnny Isakson, R-Ga. "Tax credits like this only work by creating the sense of urgency to take advantage of them and to bring the market back. So the American people and the home buyers and the home sellers have an opportunity over the next seven months to take advantage of and it's a once-in-a-lifetime credit to help us bring the housing market back to some sense of vitality."
The senators argued that expanding the tax credit beyond first-time buyers will enable more money to seep into the economy.
"The move-up home buyer is more likely to buy furniture, put on a porch, build a garage," said Senate Banking Committee Chairman Chris Dodd, D-Conn. "There is more of an economic impact ripple effect in the move-up market than there is the first-time home buyer market."
Here's how their expansion would work:
The $8,000 tax credit for first-time home buyers is currently supposed to run out Nov. 30. Under the proposal, the tax credit would be available on housing sales that are under contract by April 30 and closed by June 30, 2010.
The homes must be bought for $800,000 or less.
Income limits for eligibility would be raised from $75,000 for individuals ($155,000 for couples) to $125,000 for individuals ($225,000 for couples).
In addition, not just first-time home buyers would be eligible. Home buyers who had lived in their previous house for five of the last eight years also could claim the credit. (Dodd said this would enable 70 percent of the population to claim it if they bought a house by June of next year.)
All this would cost Uncle Sam a little over $10 billion, but Isakson said the Finance Committee has identified a way to account for that money elsewhere in the budget. He didn't know exactly where and was waiting to hear from Sen. Max Baucus, D-Mont., on the matter.
That issue of paying for the tax credit will be an important one. Democrats in the House of Representatives could reject the extension if they aren't satisfied that it won't add to the federal deficit.
The White House, too, has expressed reservations.
But Dodd said today he is convinced both sides will come around. He said that good economic news today does not mean the country's economic problems are solved, and extending the tax credit will inoculate the home market from any economic setbacks.
"There is good news," said Dodd. "And you want to sustain it."
The home buyer tax credit does have critics. An economist at the Brookings Institute recently argued that the credit costs the taxpayers much more money than it spurs in economic activity.
It is not clear when the credit proposal will get a vote on the Senate floor. The senators hope to add it as an amendment to a proposal to extend unemployment benefits by 14 weeks nationwide and 20 weeks in states with high unemployment rates.
That bill enjoys broad bipartisan support: Eighty-seven senators supported a procedural motion to consider the unemployment insurance extension.
But Democrats and Republican leaders cannot agree on which amendments to consider and have spent three weeks sparring.
Isakson predicted a vote within the next week. But whatever senators do end up passing will have to be considered by the House of Representatives before it heads to President Obama's desk.