Friday, April 4, 2008


STEVEN PEARLSTEIN, WASH POST - It all started on Monday when members of the Senate returned to Washington after another two-week recess in which they apparently discovered that voters actually expected them to do something about the housing crisis rather than just talking about it until the next recess. So Max Baucus (D-Mont.) and Charles E. Grassley (R-Iowa), the chairman and ranking member, respectively, of the Senate Finance Committee, took the opportunity to dust off a quartet of stinky tax breaks that had been rejected by the House and the Bush administration back in February, when Congress was scrambling to show that it was doing something about the gathering recession.

According to congressional tax experts, these tax breaks would cost the Treasury about $28 billion in lost revenue over the next three years, which is a chunk of change, even by federal budget standards. And while some of that might be recouped in the form of higher tax payments in the future, you know tax lobbyists are already burning the midnight oil to make sure such a thing never happens.

One of the provisions would provide a $7,000 tax credit to anyone who buys a house in foreclosure. This won't do a thing to avoid foreclosures, or put a dime in the pockets of owners who lose their homes. But it will provide a direct subsidy to banks and other lenders who, to sell their newly acquired property, would otherwise have to lower the price by another $7,000. to.

But wait, it gets worse. If you're a homeowner or builder trying to sell a similar house in the same neighborhood, your buyers would not be entitled to the tax credit. So that means that, thanks again to Max and Chuck, you could lose a sale or have to lower your price $7,000 to compete.

Another provision would make it possible for taxpayers who don't itemize their deductions to get a $500 deduction ($1,000 for couples) for state and local property taxes. This would mean even greater subsidies for homeowners, on whom we already lavish billions of dollars in tax breaks each year, including the granddaddy of all, the mortgage-interest deduction. . .

There's also authorization for states to issue an additional $10 billion in tax exempt bonds that, in theory, could be used by state housing authorities to refinance subprime mortgages at below-market rates. But if Max and Chuck had bothered to check, they would have discovered that interest rates on tax exempts are running higher than they are for taxable federal bonds. So don't look for too many states to go rushing to market with those issues.

The worst and most expensive of the tax breaks were those pushed by the home builders who made record profits during the housing boom but are now hemorrhaging cash. Basically, they would allow any company to take their tax losses from last year, this year and the next, and apply them to their profits of the previous four years rather than the two years now allowed under tax law.

The effect of the provision would essentially allow home builders to get back some or all of the taxes they paid during the years of record profits. No doubt that will be much appreciated by home builders and their shareholders, and maybe even their creditors. But because it won't lower prices or stimulate demand, it will do nothing to stimulate housing sales or production or create a single construction job.


At April 7, 2008 12:11 PM, Anonymous Anonymous said...

Developers and builders have exerted an extremely corrupting influence over local and national politics for years - second only to the influence wielded by agri-business interests.

Until American communities find new legal and political tools to fight these corporations and force them to pay the real costs of reckless expansion, they are doomed to the same pattern of cancerous development that has turned so many towns and cities into wasteland.


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