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Sen. Lieberman and the Republicans Win One with the Senate Passage of the Homebuyer Tax Credit
President Obama has had some tough trials these first few weeks of his Administration. He has had difficulties trying to get Cabinet post nominees cleared by the Senate (due to tax issues) and he’s been hectoring Congress to pass a massive $900 billion economic stimulus package by February 16th to reflate the rapidly deflating economy. Bi-partisan support has eroded and the public has grown increasingly skeptical that the domestic initiative will have immediate impact. Further, the package looks like a giant Christmas tree with baubles for every Congressional pet project and interest group whether Labor Unions, ACORN, or green power advocates. The package doesn’t put sufficient funds in the possession of those most in need, currently the unemployed, nor does it provide sufficient tax cuts and credits for the middle class. That has led Republicans and Independent Senator Joe Lieberman to come up with solutions that make sense, such as the $15,000 tax credit for home buyers passed by the Senate last night. The $19 billion amendment would address one of the root causes of the recession, the housing credit crisis.
The original stimulus package passed the House with no GOP votes. It is currently mired in political maneuvering by the Democratic majority in the Senate, fielding a wide variety of special interest amendments. The reality is that moderate ‘blue dog’ Democrats along with Republicans in the Senate have raised legitimate criticisms of the validity and immediate economic impact of the mushrooming stimulus package.
Last Sunday, the Washington Post in an editorial entitled,“Take Charge." urged President Obama to fix the faltering Stimulus package. Three prominent economists, former Clinton OMB director Alice Rivlin, Martin Feldstein of the National Bureau of Economic Research and Jeffrey Sachs, Director of Columbia University Earth Institute, took Obama and his White House team to task for the mangled package. The Washington Post noted:
Former Clinton administration budget director Alice Rivlin fears that "money will be wasted because the investment elements were not carefully crafted." Former Reagan administration economist Martin Feldstein writes that "it delivers too little extra employment and income for such a large fiscal deficit." Columbia University's Jeffrey D. Sachs labels the plan "an astounding mishmash of tax cuts, public investments, transfer payments and special treats for insiders."
The Washington Post editorial went on to address the issue of ‘timing’ of the impact of the stimulus package and the push for protectionism-“Buy American” in the Senate.
The administration says that it wants 75 percent of the money to "spend out" within 18 months. But the Congressional Budget Office estimates that, under the House bill, only 64 percent of the spending and tax cuts will hit the economy by 2011. And in recent days, a new threat has emerged -- namely that the bill will become a vehicle for resurgent protectionism. The House added "Buy American" provisions for iron, steel and textiles, and the Senate seems bent on expanding the list of products. The vice president seems blithely heedless of the danger these measures pose. Supported by Republicans as well as Democrats, the protectionism could undo whatever job creation the stimulus plan achieves by provoking U.S. trading partners into excluding U.S. goods.
Protectionism in the form of the Smoot Hawley tariffs enacted by Congress in the opening days of the Great Depression in 1930 worsened the economic catastrophe. Even FDR’s ‘New Deal policies’ didn’t lift America out of the Depression. War preparations and our eventual entry into WWII did.
That is why the home buyer tax credit amendment that swept through the Senate last night was a welcome dose of economic reality from its bi-partisan sponsors, Sen. Jonny Isakson (R. GA) and Sen. Joseph Lieberman (ID-CT).
The plan they developed is fair, equitable and has provisions that guard against the moral perils that got us into the housing credit crisis.
Here’s what the plan does, as drawn from the news release from both Senators:
The Isakson-Lieberman amendment would stimulate demand for housing by greatly enhancing the first-time homebuyer tax credit. Specifically, the amendment would:
· Double the maximum amount of the credit from $7500 to $15,000.
· Extend the homebuyer tax credit to all homebuyers, not just first-time homebuyers.
· Allow taxpayers to claim the credit on their 2008 income tax return, thus providing immediate tax relief and stimulus to the economy.
· Repeal the current law requirement that the credit be repaid over 15 years.
· Extend the credit for one full year from the date of enactment (the credit in the underlying bill does not apply to any home purchases made after August 31, 2009).
· Prevent abuse by: (1) only allowing the homebuyer credit for purchases of a principle residence, not houses purchased by investors purely for speculative purposes, and (2) recapturing the credit if the home is sold within 2 years of purchase.
The Joint Tax Committee has estimated the 10-year cost of the amendment to be $18.9 billion.
Whether it was last summer’s legislative investigations into commodity speculators and the Oil Bubble, prodding Google to drop al Qaeda videos on its You Tube websites, or now getting a rational home buyer tax credit amendment to the Economic stimulus package, Senator Lieberman has demonstrated an extraordinary range of national statesmanship and legislative leadership. He and Sen. Isakson may just have saved Obama’s drive for a stimulus package.
However, the outcome for the Economic Stimulus package is still very much in doubt as the Senate endeavors a vote on this “Christmas tree’ tomorrow.