The Policy Institute, based in Helena, Montana, blends authoritative research and hands-on political engagement to create public policy based on economic justice, fair taxation, corporate accountability and environmental responsibility.

False Advertising in Congress

By Bob Decker, Executive Director

April 21, 2008

The “Foreclosure Prevention Act of 2008,” recently approved by the U.S. Senate, breaks its promise. It’s one of those proposals that pretend to reflect popular sentiment through the attachment of a misleading title to language that either doesn't serve the sentiment or undermines it outright.

Think “Clear Skies Initiative,” “No Child Left Behind,” or the “The Patriot Act.”

The sentiment hijacked by the so-called foreclosure prevention bill is indisputable: most people are aware of the deflating housing bubble in America and want to stem the rising tide of foreclosures. But the Senate bill does little to address foreclosures and a whole lot to give corporate handouts and make misguided changes in tax policy.

One provision in the bill allows home builders to claim tax refunds by charging their current net operating losses to profits they made three or four years ago. But why reward an industry that reaped great profit in helping to inflate the housing bubble and fuel the subprime crisis?

Other businesses, including airlines and automakers, would also enjoy the dole. Auto makers, for example, might get $40 million refund checks from the government, or, more accurately, from other taxpayers who won’t get the special treatment.

Another provision adds a tax deduction - $500 to single filers and $1,000 to joint filers – for people who pay state and local property taxes but don’t itemize their federal tax returns. The argument for this largesse is that non-itemizers don’t get to deduct their property taxes because they take the standard deduction.

Well, that’s precisely the point of the standard deduction. Most taxpayers who choose it own their homes and no longer have mortgage payments to deduct. They therefore pay less tax than if they itemized and included their property taxes.

So this component of the bill also is not a solution, but a sop, one that will increase the national debt and be repaid, with interest, by our grandchildren, itemizers and non-itemizers alike.

Yet another provision creates a $7,000 tax credit for buyers of foreclosed houses. Supposedly, this would decrease the number of repossessions and help to prop up house prices. To the contrary, it may accelerate the rate of foreclosure.

Banks don’t want the work of reselling houses, so they have a motivation to modify the terms of threatened loans. But because a tax credit would make a foreclosed house cheaper to buy than an unforeclosed one, it would also make the foreclosed house cheaper – and easier - to sell. Thus a tax credit would reduce a bank’s hesitancy to undergo the hassle of foreclosure and resale.

There are a sprinkling of foreclosure-related elements in the bill, but the good is outweighed by the pandering, so much that the Center for Budget and Policy Priorities estimates that three-fifths of the bill’s $15 billion cost over 10 years “would do little or nothing to help families remain in their homes or to assist communities especially hard-hit by foreclosures.”

A better foreclosure bill would: 1) delete the corporate and ill-targeted tax breaks; 2) include measures to allow bankruptcy judges to rewrite mortgages; and 3) allow homeowners to remain in their homes as renters paying the fair market rent while working with their lenders to renegotiate loan terms.

Sen. Max Baucus was a principal author of the Senate bill, and both he and Sen. Jon Tester voted for it. Montanans should ask them to explain their votes, and both should be encouraged to reconsider their positions in light of the probability that the U.S. House will pass a different, superior bill that will require compromises to be made before a final version is approved.