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Santa in the Mirror

It was no secret who Santa was for the federal government. Santa came in the form of a Senate vote that raised the debt ceiling for federal spending by $290 billion. This new limit was the scaled down version of the $1.8 trillion that was originally sought. Lawmakers saw a protracted battle coming for the higher amount to be approved and opted for a scaled down temporary fix to get out before the holidays. The $290 billion increase will keep the government going until at least February when another increase in the trillions will be necessary to bridge the feds until the end of 2010.

How they Voted

The vote was 60-39 in favor of the increase almost exclusively down party lines. Debt limit increases only require a simple majority in the Senate: 51 votes. Republicans agreed to a Christmas Eve vote only if all senators voted. This was a strategy employed by Republicans to put the Democrats on record for voting in favor of the increase. The increase raises the debt ceiling from $12.1 trillion to about $12.4 trillion and was necessary because the $12.1 trillion ceiling was about to be breached.

The Ironic Backdrop

There are a few bits of financial irony associated with the latest increase in federal spending. One point of dramatic tension is with the economy in general. The American people continue to struggle under the weight of a sluggish economy. Credit for home loans and other needs remains very difficult for the average citizen to procure. The Senate voting to give the federal government more credit seems out of line with the people’s current circumstances. Secondly, American citizens have been told by the government to tighten their belts and ride out the storm until calmer economic conditions return. This flies in the face of continually increased federal spending. Finally, President Obama is expected to address fiscal restraint and propose plans to reduce federal spending. Those proposals will be a tougher sell in light of the increased spending limits associated with the federal deficit.

Upside Potential

The only upside to increased debt for the federal government is the political opportunity it presents to Republicans. Republicans are expected to position themselves as the reasonable good guys when they introduce legislature to curb federal spending. The GOP is expected to push for tighter caps on discretionary spending and other perceived abuses. These abuses will be painted as mostly a spending crazy Democratic problem. The target is to accomplish significant Republican gains in the mid-term November elections.

Good News for the Average Joe

One of the good things to come out of this financial dilemma and its associated political struggle is a quick solution. Democrats will work hard to bridge the remaining $1.5 trillion as quickly as possible. They do not want spending increases to be on the forefront close to the November elections. The average citizen will benefit from a fully functioning and financed federal government. They will also benefit from the spending restraints put into place that both Republicans and Democrats are sure to push through. A leaner and more fiscally responsible federal government benefits everyone.

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Congress today passed a bill that extends the homebuyer tax credit, which was set to expire at the end of this month. Homebuyers who initiate their purchase between now and April 2010 will be able to take advantage of a $6,500 deduction in their federal taxes for that year.

Of course, this tax credit isn’t available to all homebuyers. And, of course, there have been some changes to the tax credit that exists through this month. The most noticeable change is the amount, reduced to $6,500 from $8,000. But, hey, if you really need the extra $1,500, you can always apply for a pay day loan. First-time homebuyers are still eligible for a tax credit up to $8,000.

More changes to homebuyer tax credit 2010

You may have noticed that I wrote “homebuyers who initiate their purchase” earlier. Anyone who has purchased a home knows that it doesn’t happen overnight, so the bill stipulates that the buyer must sign a sales contract by April 30 and close the sale by June 30 to get the credit.

This year, only people who had not owned a home for three years were eligible to receive the credit.  Now, people who have owned their current home for at least five years can be eligible for the tax credit if they buy a new home. Also, the maximum income you can earn and still be eligible has been reduced to $125,000 for individuals and $225,000 for couples.

Exemptions from homebuyer tax credit

So, to review, people who have owned a home less than five years, people who make too much money and anyone who doesn’t sign a sales contract within the allotted time frame are not eligible for the credit.

Furthermore, the credit only applies to purchases of a primary residence. The cap on the home’s price is $800,000.

On a side note, the same bill that extends the homebuyer tax credit to 2010 also extends unemployment benefits so that people can collect them for an additional 13 weeks.

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The ridiculously high national unemployment rate (9.8 percent) has convinced Congress to consider a bill that would allow people to collect unemployment for an additional 13 weeks. However, an unemployment extension of three months might not be long enough for many people.

CNN Money reports that the job market will get better — in a year or so. Actually, the forecast says it won’t be until summer of 2012 that employment is back up to normal rates. Though people are starting to apply for auto loans again and spend a little more, the unemployment situation is not getting any better, and in many places it is actually getting worse.

How do they know?

The recession is crawling to an end as reports show the economy actually grew last quarter. Still, it’ll be a long time before there are enough jobs to go around. CNN explains:

Jobs are what are known as a trailing or lagging indicator, meaning that they change in response to other economic events, rather than predicting changes the way a leading indicator, such as the stock market, does. That’s because even after a recession has ended, employers are slow to add staff until they’re sure that demand has returned.

The article from CNN also points out that the last two recessions we’ve had were followed by a “jobless recover,” and this one probably will be, too.

When is unemployment extension vote?

Though the unemployment extension legislation has already passed the House, there is not a vote scheduled for the Senate yet, which is bad news for people whose benefits will be running out soon.

The length of time a person can collect unemployment is different in different states, but anyone who is on unemployment right now most likely will not be able to continue collecting their checks until the summer of 2012, even if Congress does pass the unemployment extension.