Stimulus Compromise Cuts Homebuyer Tax Credit

Washington, DC, Feb. 12, 2009--An economic stimulus bill is headed for passage in Congress by the end of this week after lawmakers agreed on a $789 billion plan that aims to stem the recession through a mix of government spending and tax cuts.

Following weeks of debate and negotiations in Washington, Senate Majority Leader Harry Reid said yesterday that “middle ground” was reached on a final measure. House and Senate votes approving the bill and sending it to President Barack Obama’s desk could come as early as today.

According to late reports, part of the compromise cut a $15,000 tax credit for homebuyers that was passed in the Senate version back to $8,000, just $500 higher than a credit that was already in place.

However, the credit in place has to be repaid, and it was not immediately clear if the compromise bill has that requirement.

That represents a huge defeat for the Fix Housing First coalition, which included a number of organizations and companies connected to the floorcovering industry.

The overall plan is smaller than the $838 billion bill approved earlier this week by the Senate or the $819 billion one the House passed last month. Lawmakers critical to moving the stimulus legislation through the Senate, including a trio of Republicans, insisted that the compromise be pared down and total no more than $800 billion.

“We had to nip and tuck and cut here and cut there and modify here and shape there,” said Senate Finance Committee Chairman Max Baucus, a Montana Democrat. “We had a long way to go to get to $789 billion, believe me.”

Lawmakers said they reduced one of Obama’s signature proposals, a plan to provide a $500 payroll tax cut to individuals and $1,000 to families. Under the compromise, the bill would provide $400 and $800 tax cuts, respectively. Retirees and disabled veterans who don’t pay payroll taxes would get a one-time payment of $250.

An $11 billion Senate proposal to boost the auto industry through tax breaks to new car buyers, to write off interest on their loans, also was cut to about $2 billion, according to Senator Barbara Mikulski, a Maryland Democrat, who sponsored the provision.

A proposed business tax cut that would have allowed companies to convert losses into tax refunds was all but eliminated. Baucus said the provision would have let companies claim $67.5 billion in refunds this year and next year.

A one-year cut in the alternative minimum tax survived the negotiations.

Lawmakers dropped provisions, opposed by Wall Street, which would have required companies taking money from the government’s Troubled Asset Relief Program to repay the cash portions of bonuses topping $100,000, Baucus said.

The bill would spend $59 billion to increase aid to the jobless. It would extend unemployment benefits by 20 weeks and boost weekly benefits by $25. It also would expand a subsidy to help the unemployed continue buying health insurance from their former employers.

Other proposed spending includes $29 billion for highway construction projects, $7 billion to expand access to broadband and $11 billion to renovate the nation’s electrical grid. The measure also would provide $15.6 billion for Pell college tuition grants, $8 billion for rail projects, $5 billion to weatherize low-income homes and $4.5 billion to make federal buildings more energy efficient.

The plan retains “Buy American” provisions for material used in construction projects it funds, though such rules cannot be implemented in a way that violate international trade agreements.

The bill’s final language was being worked on last night by congressional aides.

Senator Susan Collins of Maine, one of the three Republicans whose support was needed to pass the Senate’s stimulus bill, hailed the cuts made to produce the $789 billion plan. She said the measure “reflects our efforts to truly focus this bill on programs and policies and tax relief that will help turn our economy around.”

Senate Minority Leader Mitch McConnell, a Kentucky Republican, said in a statement he saw little in the compromise to change his opinion that the plan remains fundamentally flawed.