Homeowners can find cash with the homeowners tax credit

Benefits of the tax credit

Homebuyers can find cash today with the $ 8,000 first-time homebuyer tax credit. The credit is the showpiece of the 2009 American Recovery and Reinvestment Act. It was designed by the government to boost housing sales and help spur the market to recovery. Projections are that the plan was successful. Chief economist for the National Association of Realtors Lawrence Yun said, “According to our projections, homebuyers will purchase an additional 300,000 homes in the coming year as a result of the tax credit.”

Overall, the tax credit was a help to the nation’s recovery efforts. Yun said, “We think this year’s tax credit will certainly have a much bigger impact because it is a true tax credit which is also refundable. For instance, if you owe $ 1,000 in taxes and qualify for the first time homebuyers credit, you receive a tax refund of $ 7,000.” Yun believes the credit will continue to bring down housing inventories and stabilize housing costs.

Tax credit for first time homebuyers

There are rules along with the first-time homebuyer tax credit. Here are the main ones:

• It does not have to be repaid unless the home is sold within three years
• It is available to homes purchased between January 1st and December 1st of 2009.
• Restricted to individuals with AGI of $ 75,000 or more and couples with AIG of $ 150,000 or more
• The tax credit is for up to 10% of the purchase price, to a maximum of $ 8,000
• The credit can be taken in 2008
• It applies to first-time homebuyers, or those who have not owned a home in three tax years

The filing exceptions to the tax credit are:

• Those who closed on a home prior to April 15, 2009
• Those who got an extension to file taxes
• Those who filed an amended return

Critics and complainers

Though many financial experts are in support of the tax credit, there is still a portion of analysts who don’t believe it is the easiest way to find cash today. A Certified Financial Planner for the Wise Investor Group, Greg Smith, opines the tax credit is an incentive to buy, but buyers need to be realistic about the benefits of the tax credit. He said, “This incentive only works for people who have complete job security, who know they won’t be transferred within three years, who qualify as first-time homebuyers and have the ability to obtain financing. They must also live in an area with reasonable housing prices.”

Michael Dooley, another financial planner in Beverly, Massachusetts, agrees. He said, “While the theory behind the tax credit is great, I just don’t think $ 8,000 is enough. The people who would benefit from this the most are looking to survive financially or are even leaving their homes because they can’t afford them.” The tax credit was meant to cover 10% of the home’s purchase price, but surveys show that in reality it’s only covering about 4%.

Performance thus far

Although there are detractors to the tax credit who don’t believe it is the answer to finding cash today as easily as it was supposed to, it still is allowing buyers to purchase homes. The real job of the tax credit was to benefit first-time homebuyers and spur them into action. The tax credit has done that and can’t be deemed a failure yet.

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Higher jobless rates could be new normal

WASHINGTON – Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market could linger for years.

That could add up to a “new normal” of higher joblessness and lowerstandards of living for many Americans, some economists are suggesting.

The words “it’s different this time” are always suspect. But economists and policy makers say the job-creating dynamics of previous recoveries can’t be counted on now.

Here’s why:

• The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit’s automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these two industries will be engines of growth anytime soon.

• The job market is caught in a vicious circle: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.

• Many small and midsize businesses are still struggling to obtainbank loans, impeding their expansion plans and constraining overall economic growth.

• Higher-income households are spending less because of big losses on their homes, retirement plans and other investments. Lower-income households are cutting back because they can’t borrow like they once did.

That the recovery in jobs will be long and drawn out is something on which economists and policy makers can basically agree, even as their proposals for remedies vary widely.

Retrenching businesses will be slow in hiring back or replacing workers they laid off. Many of the 7.2 million jobs the economy has shed since the recession began in December 2007 may never come back.

“This Great Recession is an inflection point for the economy in many respects. I think the unemployment ratewill be permanently higher, or at least higher for the foreseeable future,” said Mark Zandi, chief economist and co-founder of Moody’s Economy.com.

“The collective psyche has changed as a result of what we’ve been through. And we’re going to be different as a result,” said Zandi, who formerly advised Sen. John McCain, R-Ariz., and now is consulted by Democrats in the administration and in Congress,

Even before the recession, many jobs had vanished or been shipped overseas amid a general decline of U.S. manufacturing. The severest downturn since the Great Depression has accelerated the process.

Many economists believe the recession reversed course in the recently ended third quarter and they predict modest growth in the nation’s gross domestic product over the next few years. Yet the unemployment rate is currently at a 26-year high of 9.8 percent — and likely to top 10 percent soon and stay there a while.

“Many factors are pushing against a quick recovery,” said Heidi Shierholz, an economist at the labor-orientedEconomic Policy Institute. “Things will come back. But it’s going to take a long time. I think we will likely see elevated unemployment at least until 2014.”

At best, many economists see an economic recovery without a return to moderate unemployment. At worst, they suggest the fragile recovery could lose steam and drag the economy back under for a double-dip recession.

“We will need to grind out this recovery step by step,” President Barack Obama said earlier this month.

Obama and congressional Democrats are having a hard time agreeing on how to keep the recovery going and help millions of unemployed workers — short of another round of stimulus spending amid rising voter alarm over soaring federal deficits.

So far, they’ve been unable to win even a simple three-month extension of unemployment insurance for people in states with jobless rates above 8.5 percent.

The extension easily passed the House earlier this month but is bogged down in the Senate over disputes over which states would get the funds. Hundreds of thousands of people have already lost their benefits or are about to lose them.

The White House credits the president’s $787 billion stimulus plan passed in February for keeping job losses from becoming even worse. Since Obama took office in January, the economy has lost 3.4 million jobs.

Republicans argue that the stimulus program has not worked as a job producer and is a waste of tax money. And last week, the U.S. Chamber of Commerce launched a multimillion advertising campaign to celebratesmall business entrepreneurs — and to argue that further government intervention will not spur permanent job growth.

Chamber leaders called for creation of more than 20 million new private-sector jobs over the next decade, saying it’s needed to replace jobs lost in the recession and to keep pace with population growth.

“The government can support a few jobs in the short-run” while free enterprise is the only system that can create 20 million of them, said Thomas Donohue, the chamber president.

To many economists, such a goal seems unreachable given today’s altered economic landscape.

“It’s a new normal that U.S. growth is going to be anemic on average for years. Right now, the prospect is bleak for anything other than a particularly high unemployment rate and a weak jobs-creating machine,” said Allen Sinai, president of Decision Economics Inc. He says he doubts that unemployment will dip below 7 percent anytime soon.

Many economists consider a jobless rate of 4 to 5 percent as reflecting a “full employment” economy, one in which nearly everyone who wants a job has one. After the 2001 recession the rate climbed to 5.8 percent in 2002 and peaked at 6.3 percent in 2003 before easing back to 4.6 percent for 2006 and 2007.

Will unemployment ever get back to such levels?

“I wouldn’t say never. But I do think it’s going to be a long time,” said Bruce Bartlett, a former Treasury Department economist and the author of the book “The New American Economy: The Failure of Reaganomics and a New Way Forward.”

“The linkage between growth in the economy and growth in jobs is not what it was. I don’t know if it’s permanently broken or temporarily broken. But clearly we are not seeing the sort of increase in employment that one would normally expect,” said Bartlett.

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