By Neil Irwin, Dina ElBoghdady and Perry Bacon Jr.
Washington Post Staff Writer
Friday, November 6, 2009; A01
Congress gave final approval Thursday for an additional $24 billion to help the jobless and support the housing market as climbing unemployment poses a growing liability for elected officials.
The bill, passed overwhelmingly by the House and headed to President Obama for his signature Friday, extends unemployment insurance benefits that were due to expire and renews an $8,000 tax credit for first-time home buyers, while also expanding it to cover many other home purchases.
The legislation represents an effort by Democrats to strengthen the anemic economy. The Senate passed the measure unanimously Wednesday, reflecting the unwillingness to be seen as opposing measures to stimulate growth even among Republicans who are skeptical of greater government spending.
Despite tentative signs of revival in the economy, unemployment continues to pose a challenge to incumbents. A report due from the Labor Department on Friday morning is expected to show another rise in the jobless rate in October -- possibly into double digits.
Congress and the Obama administration are casting about for policies of limited scale to help buttress the economy. Like the "Cash for Clunkers" program enacted this year to promote auto sales, the latest bill has broad popular support even though economists disagree about its value.
Economists generally support extending unemployment insurance. The bill would prolong benefits for at least 14 weeks for people out of work. The jobless in more than two dozen states where unemployment rates exceed 8.5 percent would receive to 20 additional weeks of benefits.
Because unemployed people tend to be strapped for cash, they often spend most if not all of the money they receive as benefits. This in turn tends to give a bigger boost to the wider economy than do many other forms of government spending.
"It's hard to think of any other initiative we can name that is as beneficial to job creation," House Speaker Nancy Pelosi (D-Calif.) said of the unemployment-benefits provision. "Its original purpose is fairness to those workers who have paid into the insurance system, and now they are getting insurance benefits, but it also has an impact as a stimulant."
Benefits for more than 1 million people would have ended without the extension, according to the National Employment Law Project, a nonpartisan group that tracks the issue. More than 15 million Americans are unemployed, more than a third of whom have been out of work for more than six months.
"Given the employment situation and the general bang for the buck you get from unemployment insurance, that's probably the most sensible of the stimulative policies to extend," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
More controversial is the decision to extend and expand the program of $8,000 tax credits for first-time home buyers.
Under the housing program, people buying a home for the first time in three years would receive an $8,000 tax credit if they sign a contract by April 30 and close by June 30. Homeowners who are buying a new primary residence would be eligible for a $6,500 tax credit beginning Dec. 1 if they owned their home for five consecutive years in the previous eight.
The timing is more flexible for military families who have been deployed overseas for 90 days or more in 2008 or 2009. They would have until April 30, 2011, to sign a contract.
To qualify, the home must be no more than $800,000. The program also restricts eligibility to individuals who make no more than $125,000 annually and couples who make more no more than $225,000. Anyone who collects the tax credit but sells the home within three years of buying it must return the refund.
The original tax credit, which was set to expire Nov. 30, has been credited with helping the housing market stabilize by coaxing new buyers into the market. But economists worry that the program distorts the market by artificially inflating home prices and are skeptical about whether the amount of additional economic activity is worth the cost. The program is estimated to cost $10.8 billion.
"The housing market is going to have to learn to stand on its own two feet," MacGuineas said. "This could misdirect resources into the wrong place."
"It's not a stimulative measure," said Kevin Hassett, director of economic policy at the American Enterprise Institute. "There has been this intuition people have that if you support demand for housing, then home prices will stop plummeting, and that might help stop the panic. But the panic stage seems to be over."
The passage of the tax credit provision was a huge win for the real estate industry, which has been lobbying aggressively to extend and expand the program. Real estate trade groups say the credit has helped boost sales and clear out a glut of lower-priced homes, especially foreclosures. Ending it would be a blow to the housing market's recovery.
Another provision allows businesses that had operating losses in 2008 and 2009 to seek refunds for taxes paid on profits over the past five years. The hope is that those refunds will allow businesses more flexibility to retain employees or make new investments to bolster the economy in the future.
The bill had been delayed for weeks as the two parties debated a number of issues not directly related to the provisions. Republicans unsuccessfully tried to force a vote on the bill to attach a provision to end the Troubled Assets Relief Program that was part of last year's effort to aid troubled financial firms.