Isakson, others weigh in on extension of housing tax credit

By Bob Keefe

The Atlanta Journal-Constitution

WASHINGTON -- Congress is taking up the tricky issue of home buyer tax credits, five weeks before the current $8,000 credit for first-time home buyers is set to expire.

In a rare appearance Tuesday as a witness before a Senate banking and housing committee, Republican U.S. Sen. Johnny Isakson, who spent 33 years as an Atlanta-area real estate broker, said that without an extension and expansion of the tax credit that is set to expire Nov. 30, "the (real estate) market is going to die a sudden death."

Isakson and Senate banking and housing committee Chairman Sen. Chris Dodd, a Democrat, are co-sponsoring legislation that would extend the tax credit until June 30, 2010. The legislation would also open the program up to all home buyers -- not just first-time buyers -- and increase the income limits for the program from $150,000 to $300,000 per couple.

Yet Isakson's testimony came as another member of Georgia's delegation to Congress, Rep. John Lewis, an Atlanta Democrat, is set to begin an inquiry into growing fraud in the existing home buyer tax credit program. Lewis, chairman of a House Ways and Means subcommittee, has scheduled a hearing for Thursday.

"I am pleased that more than one million taxpayers claimed the first-time home buyer credit," Lewis said in a statement. " However, I am concerned about recent reports that there have been fraudulent schemes involving the credit."

According to Lewis's subcommittee, the Internal Revenue Service has opened nearly 107,000 investigations into questionable claims by taxpayers seeking the credit. Additionally, the IRS has identified 167 criminal scams involving the tax credits, according to the subcommittee.

In July, the IRS announced its first successful prosecution related to fraud involving the first-time home buyer credit and warned taxpayers to beware of schemes.

Expanding any tax credit also comes at a cost. Isakson and Dodd's proposal would cost the country approximately $16.7 billion in lost tax revenues over five years, according to Senate estimates.

While Isakson and other senators said they can find cuts in spending to pay for the costs, others expressed less confidence.

"Will this be net tax relief, or will the cost of this tax credit come at the expense of another sector of our economy?" asked Sen. Richard Shelby, an Alabama Republican.

Shelby asked another witness before the banking panel, U.S. Department of Housing and Urban Development Secretary Shaun Donovan, if he thought ending the home buyer tax credit would result in the sort of dire decline in the real estate industry that Isakson suggested.

"I do not believe -- based on all the other actions we're taking -- that a catastrophic decline would result because of an end of the tax credit," Donovan said.

Donovan said the Obama administration has yet to take an official position on whether or not to continue the home buyer  tax credit program. He said the White House is still evaluating the costs of extending the program, and would announce its position soon.

"It's clear there have been some positive impacts" from the credit, Donovan told reporters later. "But the real question is, at what cost?"

Isakson has been pushing for an extension and expansion of the housing tax credit for most of the year. Earlier, he had proposed a $15,000 credit for all home buyers, but that was shot down in the Senate because of the high costs.

Showing off statistics of the Atlanta-area housing market, where he said prices have sunk 20-40 percent from a few years ago, Isakson said a tax credit extension was not only worth the cost, but critical to an any economic recovery.

For starters, it would give a booster shot to the housing market and carry the real estate business through what are traditionally its worst months, Isakson said.

Expanding the program beyond first-time home buyers also would get critical "move-up" home buyers back into the market, he said.

That could help people who are tied to their houses because they can't sell them move to new jobs or make new investments, Isakson and others said.

Without expanding the credit, "The heart and soul of the American housing market is still sitting on the sidelines," Isakson said.

PRO-CON

Pro
"Nobody argues that the tax credit hasn't worked. Of all the trillions of dollars the Federal Reserve has spent, of all the hundreds of billions of dollars that Congress has appropriated, the one thing we can reliably point to that has made a positive change for the country is the tax credit, and it's the smallest expenditure of all those things…I think it's our way out" of recession.

-Sen. Johnny Isakson, R-Georgia

Con
"We'll all be better off if we can get housing back… (but) will this be net tax relief, or will the cost of this tax credit come at the expense of another sector of our economy?"

-Sen. Richard Shelby, R- Alabama