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Tuesday, February 10, 2009

Stimulus Package: The Negotiations Begin

by Calculated Risk on 2/10/2009 09:10:00 PM

The House and Senate stimulus bills are significantly different, and finding a compromise will probably be difficult.

From the WSJ: Obama Seeks to Restore Spending to Stimulus Plan

The White House is seeking to restore funding cut by the Senate for schools, health insurance and computerizing health records as the economic-stimulus plan heads for a final round of negotiations in Congress this week.
To make room for added spending, the White House, joined by House Democratic leaders, is pressing to scale back certain Senate-passed tax breaks, including ... an $11.5 billion proposal to give car buyers a tax deduction covering local sales taxes and interest on auto loans, and a $35 billion proposal to create a new tax credit for home purchases.
The $35 billion tax credit is probably the least useful provision in the Senate stimulus bill.

Here is one of my posts on this provision: The Homebuyer Tax Credit

And here is Professor Kash Mansori on the impact of the tax credit on house prices: Will a Home Purchase Tax Credit Help Boost House Prices?

This tax credit will not stabilize house prices, has very limited stimulative impact, and it will mostly go to home buyers who would buy anyway. Hopefully it will be removed in conference.