By Ian Swanson - 10/14/09 12:25 AM EDT
The idea already has the support of Senate Banking Committee Chairman Chris Dodd (D-Conn.) and could be embraced by Majority Leader Harry Reid (D-Nev.).
“It’s probably of interest to any senator running for reelection,” said Brian Gardner, an analyst at Keefe, Bruyette & Woods. He expects Reid to support Isakson’s measure, and voiced confidence in a research note that the new credit would become law.
Income limits for those getting the tax break would be doubled under Isakson’s bill, which is co-sponsored by Dodd.
The effort comes amid record-setting budget deficits brought about by the recession. The Congressional Budget Office estimated the expansion would cost $16 billion, Isakson said in an interview.
Still, outside experts voice confidence the credit will be approved by a House and Senate eager to show constituents they are doing something about a brutal recession and painful housing market.
Reid has offered support for extending the existing tax credit, but not for expanding it. A spokesman on Tuesday said in an e-mail that Reid does not have a position on Isakson’s proposal.
Reid’s home state of Nevada has probably suffered more than any other state in the country from the housing crisis. It leads the nation in annual price depreciation, with home values down 25.4 percent in June 2009 compared to a year earlier.
Reid is also under attack from national Republicans and has seen his poll numbers fall. A Mason-Dixon survey released late last week showed Reid several percentage points behind two of the possible Republican nominees.
Dodd has been seen as the most vulnerable Democrat in the Senate in 2010 since the beginning of this political cycle, and housing is at the root of his problems.
Reports that Dodd received a mortgage from Countrywide Financial as part of a VIP program hurt the longtime senator, although the Senate Ethics Committee cleared Dodd of any wrongdoing.
Dodd trails GOP challenger Rob Simmons, a former House member, in recent polls, but has shown signs of improvement in surveys over the summer.
Isakson will offer the tax break for homebuyers as an amendment to legislation extending unemployment benefits. The existing break, included in the $787 billion economic stimulus bill, expires on Nov. 30.
“We have a tremendous record with the tax credit that shows that it works,” said Isakson, who counts 350,000 sales since the initial credit became law.
Still, he said the credit was too narrowly tailored. Expanding it to more homebuyers will spur sales beyond the entry market, Isakson said. His legislation would keep the credit alive until June 30, 2010.
Besides making the tax credit available to all homebuyers, Isakson’s measure would double the income limits on those eligible to win the credit, to $150,000 for an individual and $300,000 for a couple.
Isakson insisted the cost of the expanded credit pales in comparison to the stimulus it will provide to the housing market. It also pales in comparison to taxpayer funds targeted toward bailouts of banks and other financial institutions such as AIG, he said. Without underplaying the $16 billion cost, he described the tax credit as the one government program that has provided some bang for the buck.
While there are signs that the housing market has hit bottom, home values continue to fall. National housing prices fell 7.8 percent in June 2009 compared to June 2008, according to First American CoreLogic, which tracks housing data.
The housing crisis was caused by banks providing too-good-to-be-true loans to buyers who could not afford them, but Isakson said he does not believe the tax credit would spur the same kind of problem.
He said the 74 pages of foreclosures listed in a local Georgia paper recently are filled with notices on people who could afford their homes but are going through tough times because of the worst recession in decades.