Senate Democrats

S.A. 2712, the Worker, Homeownership, and Business Assistance Act of 2009 to H.R. 3548, the Emergency Unemployment Compensation Extension Act of 2009

Summary and Background

Last February, Congress enacted into law the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) in response to the nation’s worse economic recession in generations.  This landmark legislation included an increase of $25 billion in unemployment insurance payments and an extension of the term of coverage of unemployment insurance to ease the burdens of the suffering Americans hit hardest by the recession.  The legislation also expanded and extended the first-time homebuyer tax credit in an effort to reinvigorate the struggling housing market.  Moreover, the Recovery Act extended net operating loss (NOL) carry back provisions for small businesses hurt by the economic downturn.

Under current law, emergency compensation, which began in July 2008 as part of Supplemental Appropriations Act, 2008 (P.L. 110-252), provides up to 20 weeks of unemployment benefits to certain workers who have exhausted their regular unemployment compensation benefits, with 13 additional weeks of coverage for workers in states with the highest unemployment rates.  The Recovery Act extended the program through December 26, 2009.

Under current law, the homebuyer tax credit, which was originally created in 2008 as part of the Housing and Economic Recovery Act of 2008 (P.L. 110-289), provides an up to $8,000 (or up to 10 percent of the purchase price) refundable credit for taxpayers with incomes of up to $75,000 for individuals and $150,000 for married couples.  The credit is phased out for taxpayers with incomes above those levels over the next $20,000 (up to $95,000 and $170,000, respectively).   The Recovery Act extended the program through November 30, 2009. 

Moreover, under current law, businesses with negative taxable income (a net operating loss) can carry back those losses for two years in an effort to receive a refund for previously paid taxes.  The Recovery Act expanded the carry back for business with $15 million or less in gross receipts, allowing them to carry back losses for five years if those losses occurred in 2008. 

Eight months later, while economists agree the economy is emerging from a recession by definition, it is clear that American families, businesses, and industries are still struggling and in need of the assistance and tax breaks provided in the Recovery Act. Emergency unemployment compensation is particularly needed given that unemployment is a lagging indicator in any recession, especially one of this size.  While businesses are slow to fire at the beginning of an economic downturn, they are also slow to rehire at the beginning of a recovery period.  Unemployment compensation benefits are critical to helping families make ends meet until they can find a job.  Currently, approximately 7,000 people exhaust their benefits per day, and without an additional extension nearly 1.9 million Americans will lose their benefits by the end of 2009. 

To this end, during consideration of H.R.3548, the Emergency Unemployment Compensation Extension Act of 2009, Senate Majority Leader Reid and Senate Committee on Finance Chairman Baucus introduced a comprehensive substitute amendment (S.A. 2712) that would: 1) extend unemployment insurance by up to 14 additional weeks for jobless workers across the nation; 2) continue the $8,000 first-time homebuyer credit through April 30, 2010, but with 60 days to close after that date; 3) provide a $6,500 credit to new purchasers who have lived in their current residence for five or more years; and 4) extend and expand the carry back provision to allow all businesses to carry back losses incurred in 2008 or 2009 for five years.  The legislation also contains other provisions aimed at helping the nation recover from economic recession as well as offsets to insure the measure is fully paid for. 

The Senate began consideration of H.R.3548 during the week of October 26.  On October 29, Senator Reid filed cloture on S.A. 2712.  The Senate is expected to vote on that cloture motion on Monday November 2. 

Major Provisions

Emergency Unemployment Compensation Provisions

S.A. 2712 would:

·         Extend unemployment insurance by up to 14 additional weeks for jobless workers; and

·         Extend benefits for six additional weeks for workers in states with unemployment levels over 8.5 percent.

S.A. 2712 would also:

·         Ensure the additional $25 per week in unemployment insurance benefits provided by the Recovery Act do not count against a family’s eligibility for the Supplemental Nutritional Assistance Program, formerly known as food stamps;

·         Update the Unemployment Insurance Modernization provisions in the Recovery Act to provide that victims of sexual assault who have left their jobs have a “compelling family reason” for benefits;

·         Specify that railroad workers who face expiring unemployment benefits will be eligible for the extension of benefits; and

·         Allow states to temporarily pay tier three benefits before tier two benefits in order to avoid payment delay and to ease implementation of Emergency Unemployment Compensation benefits, but tier two and tier three benefits must be exhausted before an individual may qualify for tier four benefits. 

Offset. The unemployment compensation provisions of S.A. 2712, which is estimated to cost $2.4 billion, are fully offset by an extension of the Federal Unemployment Tax Act (FUTA) until June 30, 2011.

Business and Homebuyer Assistance Provisions

HOMEBUYER TAX CREDIT

S.A. 2712 would:

·         Extend through April 30, 2010 the tax credit for first-time homebuyers (up to $8,000 or up to 10 percent of the purchase price of the residence), allowing 60 days to close, provided that the homes are under a binding contract by that date;

·         Provide homebuyer tax credit of up to $6,500 to owners who have been in the same principal residence for five consecutive years during the previous eight years;

·         Increase the income limitations to $125,000 for individuals and $225,000 for joint filers;

·         Phase out the credit for individuals with incomes above $125,000 for individuals and $225,000 for joint filers at the same rate as current law (over the next $20,000);

·         Limit the credit to purchases of principal residences equal to or less than $800,000;

·         Eliminate the 36-month recapture requirement for military personnel, including members of the Foreign Service and intelligence community, forced to sell as a result of an official extended duty of service; and

·         Extend the tax credit for one year for military personnel serving outside the United States for at least 90 days in 2009 or 2010.  

S.A. 2712 would also include anti-fraud language.  The measure would not extend the credit to taxpayers under the age of 18 on the date of purchase unless that person is married to a taxpayer above the age of 18.  The amendment would also require a properly executed copy of the settlement statement to be attached to the tax return. Moreover, the substitute would expand the restriction on a residence acquired from a family member to include a residence acquired from a spouse’s family member.

S.A. 2712 would also extend math and clerical error authority to the Internal Revenue Service. 

NET OPERATING LOSSES

S.A. 2712 would expand and extend the five-year carry back period to allow all business (not just those with gross receipts of $15 million or less) to carry back new operating losses for up to five years for losses incurred in either 2008 or 2009 (not both).  Small businesses, however, that have already elected to carry back in 2008 under current law may also elect to carry back losses from 2009.  The substitute would permit 100 percent of the business’ income to be offset in the first four carry back years, but the offset would be limited to 50 percent of income from the fifth year.

MILITARY HOMEOWNER ASSISTANCE PROGRAM

Under current law, military personnel who sell a home that has declined in value as a result of a base closure can receive a Homeowner Assistance Program (HAP) payment to adjust for the decline.  These payments are tax exempt.  The Recovery Act expanded the HAP payment to military personnel selling their home as a result of a permanent reassignment and other purposes, but the payments are not tax exempt.  S.A. 2712 would exempt all military HAP payments. 

OFFSETS

S.A. 2712 would provide that the homebuyer and business assistance provisions, whichwould cost approximately $21 billion over ten years, be offset by: 1) delaying implementation of worldwide allocation of interest for an additional seven years, which would raise an estimated $20 billion over ten years; and 2) increasing the penalty for failure to fail a partnership or S-corporation return, which would raise an estimated $1.2 billion over ten years.

Legislative History

On September 10, 2009, Rep. McDermott introduced H.R.3548, the Unemployment Compensation Extension Act of 2009 in the House.  On September 22, the House passed H.R. 3548 by a vote of 331-83 (Roll no. 722). 

On October 8, 2009, the bill was placed on the Senate Legislative Calendar.  Senators Reid, Baucus, Reed, and Shaheen offered S.A. 2668, a substitute amendment to H.R.3548. The text of that amendment was nearly identical to the emergency unemployment compensation provisions summarized above.  Despite several attempts by Senate Majority Leader Reid, Senate Minority Leader McConnell objected to all requests that the legislation be approved by unanimous consent and all consent agreements to include a limited list of minority and majority amendments and avoid the procedural delay of cloture.  Unable to get an agreement, Senator Reid filed cloture on the motion to proceed to the bill and cloture on that motion was invoked on October 27. 

As negotiations were ongoing, Senators Reid and Baucus worked with a bipartisan group of Senators to construct a new substitute amendment that included S.A. 2668‘s unemployment compensation provisions and new homebuyer and business assistance tax provisions. 

The Senate began consideration of H.R.3548 on October 29.  This new substitute amendment (S.A. 2712 summarized above)was filed on October 29.  On that same day, Senator Reid filed cloture on both the underlying bill and S.A. 2712.  The Senate is expected to vote on the motion to invoke cloture on S.A. 2712 on November 2. 

Amendments

The DPC will distribute information to our staff listservs on amendments as it becomes available. 

Administration Position

The Obama Administration issued a Statement of Administrative Policy in support of H.R.3548 on October 27.  Moreover, the Administration has indicated its strong support for the homebuyer buyer tax credit extension. 

Resources

Congressional Budget Office, Preliminary Estimate: Substitute Amendment to H.R. 3548 (October 8, 2009), available here (an estimate of S.A. 2668). 

Congressional Research Service, Temporary Extension of Unemployment Benefits: Emergency Unemployment Compensation, available here.

Congressional Research Service, Unemployment Insurance: Available Unemployment Benefits and Legislative Activity, available here.

Congressional Research Service, The First-Time Homebuyer Tax Credit, available here.

Congressional Research Service, Net Operating Losses: Proposed Extension of Carryback Period, available here.

Democratic Policy Committee, Legislative Bulletin:  H.R.1: the American Recovery and Reinvestment Act of 2009, as amended (Modernization of Unemployment Compensation), available here.

Senate Committee on Finance, “Unemployment Insurance Benefits: Where Do We Go From Here?,” Hearing Statements and Testimony, available here.

Appendix:  Estimated Number of Federal Extension Exhaustions, by State Through September and December 2009

National Employment Law Project, August 2009

State

Total Exhaustions through September 2009

Total Exhaustions through December 2009

Alabama

0

37,794

Alaska

2,252

3,700

Arizona

5,142

22,632

Arkansas

5,076

8,273

California

68,713

154,328

Colorado

0

13,853

Connecticut

4,922

11,739

Delaware

0

3,518

District of Columbia

945

3,703

Florida

27,359

114,508

Georgia

13,844

58,887

Hawaii

2,774

5,456

Idaho

3,055

9,395

Illinois

20,266

50,028

Indiana

9,848

50,343

Iowa

19,845

30,914

Kansas

0

3,819

Kentucky

3,814

14,025

Louisiana

0

8,773

Maine

0

4,838

Maryland

15,650

25,681

Massachusetts

0

39,530

Michigan

25,534

62,753

Minnesota

6,776

13,754

Mississippi

12,895

19,109

Missouri

4,091

20,556

Montana

2,814

5,688

Nebraska

9,308

13,849

Nevada

5,041

14,135

New Hampshire

0

1,478

New Jersey

22,355

41,576

New Mexico

0

1,577

New York

0

89,662

North Carolina

15,033

32,171

North Dakota

3,187

4,195

Ohio

11,642

64,545

Oklahoma

0

5,943

Oregon

4,981

11,235

Pennsylvania

19,960

60,910

Puerto Rico

1,537

6,437

Rhode Island

2,489

4,483

South Carolina

13,775

21,852

South Dakota

954

1,543

Tennessee

8,299

32,788

Texas

0

48,596

Utah

10,731

18,226

Vermont

1,172

1,860

Virgin Islands

1,052

1,350

Virginia

0

12,877

Washington

4,628

10,455

West Virginia

0

3,756

Wisconsin

8,834

24,180

Wyoming

2,158

3,900

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