WASHINGTON - A popular $8,000 tax credit for first-time U.S. homebuyers, which has helped lift the housing market out of its worst slump since the Great Depression, is set to expire on November 30.
Lawmakers in the U.S. Senate are debating whether to extend it, or even expand it, and a vote could come this week. The U.S. House of Representatives, which would also need to approve the measure, has yet to act.
The issue is front and center for financial markets. U.S. stocks sold off and the dollar moved sharply higher on Monday after a misleading media headline said research firm ISI Group had written that the tax credit probably would not be extended when it expires November 30.
Below are some questions and answers on how lawmakers are likely to proceed.
Q: Will the Senate vote to extend the credit?
A: Likely yes, but when and in what form is unclear. Senate Majority Leader Harry Reid and Senate Republican Leader Mitch McConnell each said it had widespread support on Wednesday. But it's still unclear when the chamber would vote on the measure. Reid, a Nevada Democrat had wanted to attach it to a bill to lengthen insurance benefits for unemployed workers, but a spat with McConnell over unrelated issues has so far prevented that from happening. The Senate could still take it up this week or it could get pushed to next week, depending on how the talks on the unrelated matters go. As of Wednesday, things are still fluid.
Q: What would the Senate consider?
A: Reid and Senate Finance Committee Chairman Max Baucus, a Montana Democrat, sought to offer an amendment that would extend the homebuyer tax credit through the end of next year, while slowly phasing it out. The $8,000 tax credit would fall to $6,000 in April, to $4,000 in July and $2,000 next October. It would end entirely on December 31, 2010. Their initial proposal would not expand it to so-called step-up buyers.
Georgia Republican Sen. Johnny Isakson and Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, had a separate and more generous proposal to extend the $8,000 tax credit through June and expand it to anyone buying a primary residence, not just first-time buyers. His proposal would also raise the income limit of eligible home buyers to $300,000 per family from the current $150,000 limit.
Dodd told reporters on Tuesday that he had a done deal with Reid and Baucus to split the difference between the two proposals. Baucus told Reuters on Tuesday he now backed a modest expansion to include some step-up buyers and raising the income caps to the neighborhood of $250,000 for couples. He also said extending the $8,000 through June is a good idea. Isakson, a former real estate agent, said a deal was close.
Q: What is the Obama administration's position?
A: The White House has raised concerns about the cost of expanding the credit. Lawrence Summers, President Barack Obama's top economic adviser, told Reuters last week that the administration would be open to extending the existing credit but wants to see it remain focused on first-time buyers.
Simply extending the current tax credit is estimated to cost $1 billion a month. Isakson's proposal is slated to cost about $16.7 billion through June.
Q: What is the House likely to do?
A: House Speaker Nancy Pelosi appears to be waiting to take her cue from the Senate. Asked about the tax credit earlier this month, the California Democrat said the question is, would that be just first-time homeowners or would you open it up to other purchasers of homes?
A House Democratic aide said House leaders would likely adopt whatever language the Senate approves, which would avoid the need for negotiations to reach a compromise. Unlike the Senate, the House has already passed an extension of benefits for unemployment insurance.
(Reporting by Corbett B. Daly; Editing by James Dalgleish)