Tax breaks for homebuyers gets support in the Senate

An idea floated by homebuilders last month to encourage home buying through the use of tax credits to offset the perceived risk has gained some support in the Senate recently. Although the Bush Administration appears publicly wedded to its "no government bailout, let the markets work" stance, some experts think they're running out of time. From the Wall Street Journal:

Efforts to create new tax breaks to encourage home purchases are gaining attention on Capitol Hill, as lawmakers gird for a major debate this spring on how best to shore up the nation's troubled mortgage markets.

The Bush administration has looked at the pros and cons of a tax credit but remains opposed to the idea, saying it prefers lawmakers act quickly on administration proposals that are languishing in Congress. However, pressure may soon grow on the administration to look again at the idea. Some Democrats, among them Michigan Sen. Debbie Stabenow, have signaled support for expanded tax benefits. And the idea is proving especially popular among Senate Republicans, who are hoping to carve a distinct role as Congress takes up housing issues and often find tax cuts an appealing option. The discussions reflect a growing sense that the housing, mortgage and credit mess may require more expansive federal government action...

Striking a more aggressive posture than the White House, Democratic leaders have signaled support for legislation to create special taxpayer-backed programs to help troubled borrowers refinance into more affordable, low-cost mortgages, among other things.

While interest is growing in the housing tax breaks, it is by no means certain that they will ultimately make it into the legislative package. Critics complain the federal tax code already provides ample support for homeownership, offering a deduction for mortgage interest and allowing certain capital gains on home sales to be excluded from taxation.

Within the Bush administration, some aides are concerned that such a tax break might simply benefit individuals who would buy a home in any case. Treasury spokeswoman Michele Davis urged lawmakers to give priority to other initiatives. "We continue to believe Congress should focus on completing" bills to revamp the Federal Housing Administration and create a new regulator with broad authority over Fannie Mae and Freddie Mac, she said.

Sen. Stabenow is pushing a measure that would create a one-time tax credit of $3,000 for first-time home buyers. Mr. Isakson's proposal is broader, providing a $5,000 tax credit for the purchase of a single-family home. That credit could be claimed for three years, raising the total tax benefit to $15,000.