Congress and now the President have approved a $45 billion plan to expand a tax credit for first-time home buyers, extend jobless benefits and provide tax refunds to money-losing companies. The bill (H.R.3548) will be funded from the $787 billion stimulus originally approved in Feb 2009.

Unemployment Benefits Extension

The government is proposing to spend $2.4 billion to extend unemployment benefits for between 14 to 20 weeks, enough to cover the upcoming holiday season. States with the highest unemployment would get the highest unemployment benefits. The extension will benefit nearly 1 million out-of-work people who will run out of benefits by the end of the year. If HR3548 passes with the proposed amendments unemployed workers would generally get the following additional benefits:

- 14 weeks extra for everyone in any US state (up from the 13 initially proposed by the house in the unemployment compensation Extension act, S. 1699)
- An additional 6 weeks, for a total of 20 weeks, for those in states with unemployment at or over 8.5% (3 month average)

With enactment, the jobless in the hardest-hit states could receive up to 99 weeks of benefits, which average about $300 a week

Extended Home Buyer Credit

The $8,000 home buyers’ tax credit enacted earlier this year and slated to expire on November 30th 2009, will now continue until April 30 and contain the following new provisions.

- First-time home buyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

- Current Homeowners looking for a new home could also qualify for a $6,500 credit if they have lived in their existing primary residence for at least five years

- The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

- Tax Credit Exclusions: Homes that cost more than $800,000 aren’t eligible for the credit and you must be over 18 years old to claim the credit. Those who sell their new home or stop using it as their main residence within three years would have to repay the credit.

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The Treasury Department estimates that more than 1.4 million Americans have taken advantage of the home buyer credit at a cost so far of about $10 billion. Democrat leaders say expanding the credit to those who already own homes would help create jobs because “the move-up buyer is more inclined and capable of buying that furniture, maybe building a porch, putting a garage on, a new roof” and making the “kinds of investments I think is going to be a job-creator across the country.” Republicans, called the tax credit a waste of money, saying studies show that most of those claiming the break would have bought homes anyway.

Goldman Sachs Group Inc. said in a research note yesterday that the credit probably spurred 200,000 home sales that otherwise wouldn’t have occurred. Extending the credit to people who own homes wouldn’t reduce the excess housing blamed for the slump because “every buyer taking advantage of the move-up credit would necessarily be a seller,” Goldman Sachs said. It said the plan may increase housing prices by 1 percent because “sellers are likely to incorporate a fraction of the credit amount in their sale prices.”

The senate approved legislation also would expand provisions in the stimulus package allowing companies to apply their losses to previous years’ income, thereby reducing their tax bills and allowing them to claim refunds. Banks and other institutions receiving assistance from the Treasury Department’s TARP program wouldn’t be eligible.

Lawmakers are still considering whether to extend several other elements of the stimulus package, including subsidies to help the jobless buy health insurance and increased funds for food stamps. Obama has also called for sending seniors $250 checks because they won’t get a cost-of-living increase next year in their Social Security checks. I will provide updates on these and progress of the above bill through Congress, and encourage you to subscribe (free) via Email or RSS to get the latest news.

References : Bloomberg

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