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Posts Tagged ‘tax credit’

Obama’s divisive economic stimulus package was approved by the Senate yesterday (Wednesday February 2) after it was agreed that the proposal would provide a tax credit of 10% of the value of new or existing residences up to a $15,000 limit.

The current law provides for a $7,500 tax break but only for first-time homebuyers.

And the estimated cost of implementing the bill?

$920 billion!!

Sen. Johnny Isakson, R-Ga., who advanced the ‘homebuyers tax break’ said it was intended to help revive the failing housing industry which has collapsed and his office estimated that his proposal would cost the government an additional $19 billion.

Democrats seemed happy enough to agree to the proposal which will now have to make its way through congress, something which can be expected to take around ten days.

On another controversial issue, the Senate upheld a labor-backed provision requiring that only U.S. manufactured iron or steel will be used in construction projects that are funded by the bill.

A move by Sen. John McCain, R-Ariz., to delete the so-called ‘Buy American’ requirement failed by, 31-65.

On a day on which Obama pushed back forcefully against Republican critics of the legislation he had this to say,

“Let’s not make the perfect the enemy of the essential. Failure to act quickly will turn crisis into a catastrophe and guarantee a longer recession”.

He then added that the criticisms that he’d heard “echo the very same failed economic theories that led us into this crisis in the first place, along with the notion that tax cuts alone will solve all our problems. I reject those theories and so did the American people when they went to the polls in November and voted resoundingly for change”.

The House passed an $819 billion stimulus proposal last week and the Senate version which is being debated this week might be as high as $900 billion.

One of the main reasons that the bill is in trouble however is that almost every Republican and many Democrats too argue that no money is presently being allocated to foreclosure relief, apart from a $7,500 tax credit for first-time home buyers.

Last October, the government created the ‘Troubled Assets Relief Program’ (TARP) and its mandate was to purchase or insure up to $700 billion of “troubled” assets from banks and other financial institutions in the hope that it would encourage the banks to resume lending at levels similar to those that existed before the economic downturn.

Senate Republican leader Mitch McConnell put forward a proposal on Monday that has attracted many supporters and possibly just as many opposers.

In a nutshell his recommendation is to offer government-backed, low-interest loans which would be fixed at between 4-4.5 % to any credit-worthy borrower and the amendment would require banks to issue these lower fixed-rate mortgages for both for new homes purchases and for the refinancing of mortgages.

In a radio address, McConnell said his plan would cause the average family’s monthly mortgage payment to drop by $466 a month.

Bert Ely, who is the president of ‘Ely and Company’ which is a financial institutions and monetary policy consulting firm said however that, “McConnell’s 4% proposal would allow for several trillion dollars of mortgages to be refinanced and that would overwhelm the mortgage system. It might sound good, conceptually, but it’s simply not feasible and would have a lot of unintended consequences”.

McConnell countered however that the proposal would make an enormous difference to families and added that he would not like to see the remainder of the TARP money being used to decide winners and losers in the financial markets.

“I do, at the risk of being redundant, think that we ought not to start dictating everything they can do in their businesses. That’s not a great way for them to recover; it’s not a great way for them to raise private capital if they’re really not running the business, we are”.