Corporate Welfare for Homebuilders?

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 |  Includes: DHI, PHM
by: Tom Lindmark

So much for change.

The WSJ reported last evening that President Obama’s new budget includes a big payoff for large businesses including the home builders.

As part of its $3.6 trillion budget blueprint unveiled last week, the administration proposed allowing large businesses to use recent tax losses to offset taxable profits earned in the past, and reap sizable cash refunds. Typically, companies can carry back such losses only two years, but the White House is considering extending that to five years.

Big home builders have lobbied for an expansion of this tax break for nearly a year and appeared close to getting it in the $787 billion economic-stimulus plan. But at the last minute, Congress limited the five-year carry-back provision to firms with annual gross receipts of $15 million or less.

Analysts and some small builders worry the provision could prompt large builders to sell land or homes at steep discounts to generate losses for tax purposes, as companies such as D.R. Horton Inc. (NYSE:DHI) and Pulte Homes Inc. (NYSE:PHM) have done in recent months. A big labor union and other criticis have argued against the break, saying it would help the very builders that contributed to the housing crisis.

If the version in the Obama budget is enacted, the break is projected to trim federal revenue by about $18.5 billion over the next 11 years, according to the White House Office of Management and Budget. The tax break was dropped from the stimulus plan as part of an effort to lower the package’s cost to the Treasury, to appease Republican and Democratic centrists. Now that cost could be realized in the budget instead.

Other than trying to pump federal funds into companies, there is little reason for this tax break. It is corporate welfare at its worst. The fact that it took this long for some one to ferret it out belies the Obama camp’s claim to transparency and honesty in the budget process.

At a point in time in which we need to be devoting strained resources towards digging ourselves out of this mess, this sort of gift to a narrow slice of the population is unconscionable. It’s nothing more than Washington business as usual. Give a huge amount of money to a small constituency and expect some to flow back to your campaign coffers.

Come on Barack. Walk the walk.