June 19,2008

Baucus Floor Statement Regarding Housing Tax Provisions

Confucius said: “The strength of a nation derives from the integrity of the home.”

Today we are here to protect the strength of our Nation. We are here to help keep
families in their homes.

The tax provisions in the amendment before us are meant to stabilize the housing market
and boost our economy. They are designed to provide temporary, targeted, and timely
tax relief for the housing market.

In 2007, one percent of all homes were in default. That’s more than 1.2 million homes.

The Nation’s 2007 foreclosure rate was two and a half times what it was in 2005.

In my home state of Montana, the 2007 foreclosure rate was up almost 30 percent from
2006 and more than 50 percent from 2005.

And the number of foreclosures continues to grow. Nationwide in May, the number of
homes receiving a foreclosure-related notice was up seven percent from the month
before, and up 48 percent from a year before. This means that one in every 483
American households received a foreclosure notice last month. That’s a record high.

Behind every foreclosed property, there’s a family. There’s a family losing its home.

And there’s a family losing a piece of its future.

Our Nation’s current economic weakness is largely a result of the weak housing market.

More than five million households now owe more on their mortgage than their house is
worth. That’s about one out of every ten home mortgages. As home prices continue to
fall, these numbers will only get worse.

This amendment is a response. It would provide tax relief for homeowners, for
homebuyers, and for homebuilders.

First, it would provide an additional $11 billion of mortgage revenue bonds so that state
housing agencies can immediately respond to the housing downturn. This would help
homeowners avoid foreclosures. And it would increase first-time home purchases.

Mortgage revenue bonds are tax-exempt bonds issued by state and local housing finance
agencies. The bonds help those agencies to provide mortgages for homebuyers at belowmarket
rates of interest.

The virtual collapse of the subprime and affordable mortgage markets has increased the
demand for mortgages financed through mortgage revenue bonds. Increasing the cap on
mortgage revenue bonds and providing states the option to refinance subprime mortgages
can allow state housing agencies to immediately respond to homes at risk of foreclosure.

And additional mortgage revenue bonds can also help clear out the glut of homes on the
market. Additional mortgage revenue bonds can lead to more first-time home purchases.

The amendment also would provide broad-based tax relief by expanding the number of
people who may deduct property taxes. Currently, homeowners are allowed to deduct
local real estate property taxes from their Federal tax returns only if they itemize.

According to the Joint Committee on Taxation, more than 28 million taxpayers pay
property taxes, but do not itemize.

This proposal would allow these 28 million taxpayers to deduct the amount of their
property taxes, up to $500 for individuals and $1,000 for married filers. They could take
this deduction even if they did not itemize their deductions.

This change would benefit low-income individuals. It would benefit those who have
already paid off their mortgages and thus don’t have that reason to itemize. It would
benefit young families just starting out. And it would benefit senior citizens.

The Congressional Research Service estimates that nearly 130,000 property-tax payers
could benefit in my home state of Montana alone.

Listings of distressed properties dominate the real estate market. In the first quarter of
this year, 1 out of every 4 home sales was a distressed sale. The papers are full of
foreclosures and vacant new homes.

As of April 2008, there were more than 456,000 newly-constructed homes for sale on the
market. That’s more than ten months worth of supply. And according to the National
Association of Realtors, four and a half million existing homes are for sale on the market.

To help reduce the excess inventory of foreclosed, vacant, and existing homes, the
amendment includes a one-time homebuyer credit of $8,000.

The credit would apply to first-time homebuyers. It would begin to phase out for
homebuyers with incomes of $75,000 for individuals and $150,000 for joint filers. The
purchase of the home would have to be on or prior to April 1, 2009. And the credit
would be repaid over 15 years at zero percent interest.

The short-term nature of this credit is critical. It would help to provide immediate
stimulus to put homebuilders, and the housing industry, back on track. But it would also
avoid over-subsidizing the housing industry.

The amendment would also make critical improvements to the Low Income Housing Tax
Credit program. This program is the engine that drives low-income rental housing in
America. But it is long overdue for a tune up.

The amendment would increase the total number of credits available by ten percent per
state. And the amendment would broaden the investor class by allowing the credit to be
taken against the AMT.

The state housing finance agencies are good stewards of this Federal program. And the
amendment would give these agencies more discretion to allocate credit dollars to
projects that the state deems a high priority.

These tune-ups would help to make this engine run more smoothly. And they would lead
to an increase in affordable rental housing across the country.

The amendment would also allow taxpayers to choose to take a refund of AMT or R&D
credits in place of bonus depreciation deductions. Companies without federal tax liability
cannot use the tax deductions. But under this amendment, they could take advantage of a
refund. And they could use that funding invest in capital assets. And that would create
and maintain jobs.

These proposals would be fully paid for by responsible offsets. As much as possible, we
should avoid increasing our national debt and our reliance on foreign creditors.

The amendment includes a House-passed proposal to close a loophole involving the sale
of second homes. It would apply to houses that are used both as a principal residence and
for other purposes. An example would be a principal residence that also was used as
rental property.

Under current law, an owner can exclude income from the sale of that second home. The
owner just needs to have lived in the home for two out of the last five years.

The proposal would limit the gain that the owner could exclude from income when the
owner sells the residence. The idea behind the proposal is that a personal-income
exclusion should be limited to the personal use of the residence.

A second pay-for would require information reporting on credit card transactions. It
would also apply to many on-line transactions. Merchant banks that settle credit- and
debit-card sales would report annual gross payments to the businesses making the sales
and to the IRS. Third-party networks that facilitate electronic transactions would do the
same.

In response to concerns about possible burdens this proposal could put on small ebusiness
sellers, the proposal contains a de minimis exception. The exception excludes
from the reporting requirements operations with aggregate sales of $10,000 or less a year.

And the exception would also exclude a volume of 200 transactions or fewer.

The proposal would give ample time to banks and others so that they can program their
systems and to verify the information that they need from sellers before issuing the
information documents.

This proposal does not raise taxes on anyone. These information reports would just cause
people to file more-accurate returns.

The administration has included this proposal in its annual budget for the last three years.

Earlier this year, Senator Grassley and I released a bi-partisan staff draft of the proposal
for public comment. Working together with the House, we have taken these comments
into account to develop a proposal that reflects industry practices and will improve tax
compliance.

The amendment would also enhance several IRS penalties. These penalties encourage
the filing of timely and accurate tax and information reporting returns. These filings are
the cornerstones of effective tax administration and voluntary tax compliance.

A lot of irresponsible actions led to the current housing crisis. But now, a lot of responsible homeowners, homebuyers, and homebuilders are caught up in the mess. And they cannot afford to wait any longer for our help.

The tax provisions in this amendment would go a good way to address the housing
downturn and economic weakness in our country.

So let us help to keep folks in their homes. Let us thus thereby help to sustain the
economic strength of the nation. And let us adopt this housing amendment.

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