You Get What You Pay For

The centerpiece of the bipartisan Foreclosure Prevention Act, passed by a bipartisan 84-12 in the Senate on Thursday, is a corporate tax giveaway for homebuilders, one of the groups most responsible for the housing bubble. You might remember that it was the homebuilders who rushed ahead with new housing developments under the delusion that the good times would last forever. Now they are being rewarded for their gluttony.

The bill contains a $6 billion tax tax write-off that would allow any homebuilder such as KB Homes to take their tax losses from 2007, 2008, and 2009 and apply them against their profits for the previous four years rather than the two years now allowed under the law. The technical term for this is "tax-loss carryback." It would essentially allow homebuilders to get back some or all of the taxes they paid during the years of record profits.

A little background. These very same tax provisions were jettisoned from the final version of the economic stimulus package enacted into law in mid-February. That omission brought the president of the National Association of Home Builders before the microphone the very next day to announce that its political action committee was halting all contributions to federal congressional candidates "until further notice."

It's not often that you see the direct link between campaign contributions and congressional action. But the Senate's passage of this $16 billion boondoggle exposes for the world to see the underbelly of the connection between money and politics As Melanie Sloan, executive director of the Citizens for Responsibility and Ethics, recently pointed out: "How many members of Congress have you heard say, 'People donate to me, but it has no affect at all'?" The Senate's action explodes the oft-repeated assertion by elected officials that lobbyists deal with them only at arm's length. By including this giveaway in the new bill, the Senate is acknowledging the direct connection between campaign contributions and legislative outcomes.

And let's be clear, we're not talking about chump change. BUILD-PAC - as it's known - is the nation's 17th largest political action committee as well as the seventh largest corporate PAC. Since 1990, it has given nearly $20 million to federal candidates. In the current election cycle, BUILD-PAC has collected more than $2 million and handed out $1.5 million to candidates

If this tax break were good policy, it might be considered worth it. But it's not. It won't lower housing prices or create demand; it will do nothing to stimulate housing sales or production; nor will it - for that matter - create a single construction job. What is clear is that missing from the bill is a provision that would have actually helped the growing ranks of defaulting borrowers. It would have allowed bankruptcy judges to rewrite the terms of residential mortgages for distressed borrowers. Also missing was a provision to grant the Federal Housing Administration expanded powers to back the refinancing of troubled mortgages by providing $300 billion in new loan guarantees. The winner in this battle was the mortgage industry, the second villain in the housing crisis. It was this industry, you will recall, that promoted subprime mortgages to the most vulnerable segments of our society. Then they washed their hands of the potential mess by magically transferring the debt into Wall Street securities.

The losers are folks struggling to keep their one major asset. The misnamed Foreclosure Prevention Act is unlikely to help most borrowers trying to keep a roof over their head. The Center for Responsible Lending estimates that 8,000 families a day are sliding into foreclosure and that adopting real foreclosure prevention would make a real difference to 600,000 homeowners. Who lobbies for them? Unfortunately, you already know the answer to this question.
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The writer is Vice-Chair of California Common Cause and President of the California Tax Reform Association.