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Housing Bill Brings Big Tax Breaks

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THE PROGRESSIVE REVIEW - April 17, 2008
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Big Tax Breaks for Businesses in Housing Bill
By Stephen Labaton and David M. Herszenhorn
The New York Times

Washington - The Senate proclaimed a fierce bipartisan 
resolve two weeks ago to help American homeowners in 
danger of foreclosure. But while a bill that senators 
approved last week would take modest steps toward that 
goal, it would also provide billions of dollars in tax 
breaks - for automakers, airlines, alternative energy 
producers and other struggling industries, as well as 
home builders. 

The tax provisions of the Foreclosure Prevention Act, 
which consumer groups and labor leaders say amount to 
government handouts to big business, show how the credit 
crisis, while rattling the housing and financial markets, 
has created beneficiaries in the power corridors of 
Washington.

It also shows how legislation with a populist imperative 
offers a chance for lobbyists to press their clients' 
interests. 

This has proved especially true on the housing legislation, 
which many lawmakers and lobbyists view as one of the last 
opportunities before Congress grinds to a halt amid 
election-year politics. 

In the Senate bill, the nation's biggest home builders, 
some now on the verge of bankruptcy, won a provision that 
would let them claim millions in tax refunds by charging 
their current losses against the huge profits they made 
three or four years ago. Other struggling industries would 
benefit from this provision. 

"This is our biggest legislative effort since the Tax 
Reform Act of 1986," said Jerry M. Howard, chief executive 
of the National Association of Home Builders. Hundreds of 
the association's members flooded the district offices of 
representatives and senators while they were home for the 
spring recess last month. 

Supporters of the bill, including Senator Max Baucus, 
Democrat of Montana and the chairman of the Senate Finance 
Committee, say it represents sound tax policy carefully 
focused to help stimulate the lagging economy. But the 
White House opposes the Senate bill, and Democratic leaders 
in the House not only have promised to provide more relief 
for individual homeowners, but have also dropped the 
corporate tax provisions from their version. 

Downtrodden automakers - Ford and General Motors - were 
especially dogged in securing a tax break that would let 
them collect alternative minimum tax credits, also known 
as the A.M.T., that would otherwise be out of reach because 
they did not pay enough taxes in recent years to claim a 
rebate. 

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If the provision becomes law, it could mean checks up to 
$40 million for the car manufacturers, as long as the 
companies had made investments in plant or equipment in 
that amount. 

A Ford spokesman, Mike Moran, said he was aware that Ford 
would benefit from the tax credit in the bill passed by 
the Senate. But Mr. Moran said that the credit applied to 
a range of industries, not just automakers. A General 
Motors spokesman could not be reached. 

Domestic airlines and manufacturers other than automakers 
would be eligible to claim the A.M.T. break as well. One 
lobbyist said that the companies that had sought the tax 
breaks in meetings with lawmakers included Ford, General 
Motors, American Airlines, Northwest Airlines and Goodyear 
Tire and Rubber. 

Companies could claim only one of the new tax breaks, which 
in all, are expected to cost $6 billion through 2018. The 
jockeying among industry groups, including Realtors, home 
builders and bankers, is certain to intensify in coming 
weeks as lawmakers move to reconcile the Senate bill with 
a more ambitious package of housing legislation now under 
way in the House. 

Lawmakers on the tax-writing House Ways and Means Committee 
have omitted the corporate tax cuts from their version of 
the bill in favor of tax breaks for first-time home buyers 
and developers of low-income rental housing, and more aid 
for owners facing foreclosure. 

Congressional Democrats are also hearing from consumer 
advocates and other groups who say that the Senate bill 
does little to help Americans in danger of losing their 
homes to foreclosure. 

"The Senate legislation gave corporations and Wall Street 
billions in tax breaks," Terence M. O'Sullivan, the 
president of the Laborers International Union of North 
America, said at a news conference on Tuesday to denounce 
the bill. 

"Tax breaks for corporate home builders won't help 
stabilize the housing market, won't create jobs and won't 
prevent a single foreclosure," he continued. "If anything, 
this multibillion-dollar windfall will make things worse." 

Even Senator Christopher J. Dodd, Democrat of Connecticut 
and the main author of the Senate bill, said the measure 
did not live up to its name and that he wanted changes. 
But other lawmakers, and the lobbyists who seek to 
influence them, also recognize a golden opportunity when 
they sense that the political winds virtually guarantee 
a bill's passage, and the housing crisis is just such a 
time. 

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In a sign of how such legislation allows lawmakers to 
advance many other goals, the Senate bill also includes 
tax provisions to encourage alternative energy production 
at a cost of roughly $6 billion over 10 years. 

That provision was sponsored by Senator Maria Cantwell, 
Democrat of Washington, and Senator John Ensign, Republican 
of Nevada. A similar measure was dropped from a major 
energy bill last year and again from the economic stimulus 
bill in February. 

But without quick action to extend expiring tax incentives, 
Ms. Cantwell said, many companies would simply drop 
projects. The housing bill was the easiest and fastest way 
to get things moving. 

Other industries facing financial difficulties, like 
retailers, may realize that the tax provisions in the 
bill offer help for them, too. 

Over the next few weeks, industry groups that fought to 
secure tax provisions in the Senate bill are expected to 
argue that providing help for important industries offers 
the best chance of helping to reverse the economic downturn.

To press their case on Capitol Hill, 15 of the biggest 
residential construction companies, including KB Homes 
and Toll Brothers, formed a coalition and hired a lobbying 
firm, the C2 Group, apart from the larger National 
Association of Home Builders. 

Tom Crawford, a founder of the C2 Group, met with staff 
members of the Senate Finance Committee, several of whose 
members had already begun expressing concern about the 
effect of the slowing economy on home builders and other 
businesses. 

The home builders were hardly the only industry that 
lawmakers heard from as the Senate housing legislation 
took shape and it became clear that the bill would provide 
more in the way of tax breaks aimed at stimulating the 
economy than direct assistance for distressed homeowners. 

The cause of the automobile manufacturers was taken up by 
Senator George Voinovich, Republican of Ohio, and Senator 
Debbie Stabenow, Democrat of Michigan, who pushed to allow 
them access to up to $40 million each in alternative 
minimum tax credits.

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Automakers and other companies that have lost money in 
recent years have accumulated billions of dollars in such 
credits, which are based on cumulative payments of the 
corporate alternative minimum tax. Companies, however, 
can claim a refund of such credits only in years when 
they pay regular corporate income taxes in amounts that 
exceed what they would owe under the alternative tax 
method. 

The provision benefiting home builders and other struggling 
businesses would allow operating losses to be carried back 
over four years rather than the two years in current law. 
It is a strategy that Congress has used as a way of 
stimulating the economy in previous recessions, most 
recently in 2002 with the support of the Bush 
administration. 

But the White House opposed the idea when members of 
Congress proposed it as part of the economic stimulus 
package earlier this year. And some House Democrats 
suggest that home builders and their lobbyists will 
face an uphill battle in trying to keep the provision 
when the Senate bill is reconciled with a rival tax 
package that was approved last week by the House Ways 
and Means Committee. 

These Democrats said that the Ways and Means chairman, 
Representative Charles B. Rangel, Democrat of New York, 
and other leaders, including Nancy Pelosi, the House 
speaker, would oppose the provision as benefiting 
builders at a time when Congress should be helping 
homeowners.

"This ship largely sailed when Congressional Republicans 
left it out of the stimulus package," said one House 
Democratic aide, who spoke on condition of anonymity so 
as not to interfere with negotiations. 

Unlike the Senate bill, which includes a tax credit of up 
to $7,500 for purchasers of foreclosed properties, Mr. 
Rangel's bill provides a credit for all first-time home 
buyers - a move that drew strong support from the National 
Association of Realtors. 

"This is a meaningful incentive that should draw into the 
market many purchasers who, to date, have remained on the 
sidelines," the president of the group, Richard F. Gaylord, 
wrote. "We believe this credit can convert 'lookers' into 
first-time home buyers." 

Other industry groups were also eager to sign on as 
supporters of Mr. Rangel's bill, even as many of them 
hope to push him to endorse a more expansive menu of tax 
breaks that will benefit them. 

Among them were the National Association of Home Builders, 
the Mortgage Bankers Association, the Securities Industry 
and Financial Markets Association, the Council of Federal 
Home Loan Banks and the American Hospital Association. 

--------

Micheline Maynard contributed reporting from Detroit.

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