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House and Senate Approve $3.5 Trillion Budget Plans
Voting along party lines, the House and Senate last week each approved $3.5 trillion in spending in their respective versions of the fiscal 2010 budget.
The budget serves as a broad blueprint that will permit President Obama to focus on his key goals — an expansion of health care coverage for the uninsured, a cap-and-trade system to reduce greenhouse gas emissions and increased funding for education reform and college loans.
The broad budget outline contains provisions that are both supported and opposed by NAHB. However, the final outcome on any of these provisions remains unclear; the congressional budget represents more of a sense of the Congress and its spending priorities than the specifics that will be applied to various spending programs. It is unlikely that the final budget approved by Congress will be enacted into law as written.
While the budgets approved by both chambers of Congress contain tax elements of interest to NAHB, these provisions do not bind the tax-writing committees to taking any specific action. Below are topics of interest to home builders:
- Cap on the Value of All Itemized Deductions. Unlike the White House budget plan, neither the House nor Senate budget contains any proposal to cap the value of all itemized tax deductions for higher-income taxpayers — including the mortgage interest and real estate tax deductions.
- Home Buyer Tax Credit. An amendment by Sen. Johnny Isakson (R-Ga.) was accepted by unanimous consent to provide a deficit-neutral reserve fund for a nonrefundable $15,000 federal income tax credit for the purchase of a principal residence during a one-year period.
- Estate Tax. The underlying Senate budget resolution freezes the estate tax at the 2009 level ($3.5 million exemption per individual and $7 million per couple, with a 45% tax rate above that amount). Then two conflicting amendments were adopted, which should make conference negotiations interesting. The first amendment offered by Sen. Jon Kyl (R-Ariz.) and Sen. Blanche Lincoln (D-Ark.) increased the exemption to $5 million per individual with a 35% tax rate above that limit. The second amendment put forth by Sen. Richard Durbin (D-Ill.) created a point of order against any estate tax legislation beyond the “baseline” $3.5 million/45% proposal in the resolution unless it provides equal relief to those earning less than $100,000. Meanwhile, the House budget resolution allows the estate tax to be addressed with a cost cap of $72 billion over five years.
- Net Operating Loss (NOL) Carry Back. The Senate bill contains an explicit expansion of the NOL carryback along the lines of the original Obama stimulus proposal, while the House resolution mentions business tax relief generally with nothing specific on NOL. In a related development, a broad NOL bill was introduced in the Senate this week (for a related story in this week’s issue of NBN, click here).
The biggest item of contention between the two budgets is a tool known as "reconciliation," which would enable the Senate to approve Obama's health, energy and education initiatives by a simple majority of 51 rather than gaining Republican support to reach the usual 60 votes required.
The House voted to include the procedure in its budget plan for health care and education legislation. The Senate rejected reconciliation for Obama's cap-and-trade proposal, while the House budget does not include cap-and-trade in its reconciliation provisions.
The bottom line is that when the House and Senate go to conference to produce a final budget, the door has been left open to employ reconciliation on any or all of these initiatives.
For more information on the proposed tax elements within the House and Senate budgets, e-mail Greg Brown at NAHB, or call him at 800-368-5242 x8421. For other information on the fiscal 2010 budget, contact Jenna Hamilton, x8407.
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