Money Matters - Simplified

Business Assistance Act of 2009: Builders Get Treated, Tax Payers Pick up the Tab

How some builders stand to gain unfairly from the bill?

The new bill makes provision for builders suffering losses in 2008 and 2009 to claim refunds from the tax paid in the previous five years.

Intense lobbying lets bills get passed. Both the houses voted in favor of this bill in overwhelming majority. For instance, the House of Representative passed the bill by a vote of 403-12. There are many components of the bill that are worth approbation. That, however,cannot condone the unfair advantage that we are talking here.

To give the economy a necessary fillip, Barack Obama signed the Worker, Homeownership and Business Assistance Act of 2009 into a law Nov. 6. The bill has good intentions, and workers as well as homeowners would benefit from them. But some builders stand to make windfall gains, the burden of which will be borne by taxpayers.

Among other things, the new bill makes provision for builders suffering losses in 2008 and 2009 to claim refunds from the tax paid in the previous five years. The aim of such a step is to make available more funds with builders to invest in real estate ventures and building projects to create jobs.

But will it really help create jobs in the housing sector? And is it even fair?

Why is it not entirely fair?
Undoubtedly tax breaks would help create jobs, but all builders will not benefit equally. Many builders that were about to sink will get a lifeline. But some builders that were overambitious and hence overbuilt, the ones responsible for creating the housing mania, will get helicopter money, which defies logic.

The earlier Economic Recovery Act encompassed small businesses that were in dire straits. The latest recovery law includes struggling medium and large businesses in its ambit.

Medium and big builders that precipitated the credit crisis are now at the front of the line to receive tax refund. These builders have strong balance sheets and are sitting on huge piles of cash. It is unfair to shower them with more cash.

The net operating loss carry back rule will benefit big players like Pulte Homes. Already owning $1.5 billion in cash and cash equivalents, it will get refunds exceeding $ 450 million. Smaller players like Beazer Homes will get refunds to the tune of $50 million even when they held $523 million in cash and cash equivalents in September.

How many jobs will be created
National Association of Home Builders, a Washington based trade body, estimates that about 30,000 construction and related jobs would be saved by this bill. This is heartening, given the fact that the construction has been reeling under an unemployment rate of 18.7 percent in October in comparison to the national average unemployment rate of about 10 percent.

But all those receiving tax refunds will hardly pump that money in projects that would lead to creation of jobs. They are more likely to buy more lands or put the money into current operations immediately. Only when the housing demand grows they will start building new houses and accelerate employment.

It is clear that a part of the tax payers’ hard earned money is going to those people who do not need it or didn’t run their business prudently, and will not create jobs as it is intended. It is not hard to see why this has happened. Home builders paid hundreds of thousand dollars each, amounting to $6 million in total in October 2009 to see the bill through.

It is sad but true that: The ones with lobbying power shall inherit the world of business.