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FULL COMMITTEE HEARING ON

THE HOUSING CRISIS:

IDENTIFYING TAX INCENTIVES TO

STIMULATE THE ECONOMY

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JUNE 5, 2008

Serial Number 110-97

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZALEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

VERN BUCHANAN, Florida, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZALEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida

Subcommittee on Rural and Urban Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZALEZ, Texas 

RAUL GRIJALVA, Arizona 

MARY FALLIN, Oklahoma, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Davis, Hon. David .................................................................................................... 2

WITNESSES

Leppo, Mr. Dale, Chairman, Leppo Rents/Bobcat of Akron, Tallmadge, OH, 

On behalf of the Associated Equipment Distributors ....................................... 3

Puffer, Mr. John, Chairman and President, Pilot Bank, Tampa, FL, On behalf 

of the Independent Community Bankers of America ........................................ 4

Robson, Mr. Joe, Robson Companies, Broken Arrow, OK, On behalf of the 

National Association of Home Builders .............................................................. 6

Helsel, Jr., Mr. James L., RSR Realtors, Lemoyne, PA, On behalf of the 

National Association of Realtors ....................................................................... 8

Engelhardt, Dr. Gary V., Professor of Economics, Maxwell School of Citizenship and Public Affairs, Syracuse University, Syracuse, NY ........................... 10

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 25

Chabot, Hon. Steve .................................................................................................. 27

Altmire, Hon. Jason ................................................................................................. 28

Leppo, Mr. Dale, Chairman, Leppo Rents/Bobcat of Akron, Tallmadge, OH, 

On behalf of the Associated Equipment Distributors ....................................... 29

Puffer, Mr. John, Chairman and President, Pilot Bank, Tampa, FL, On behalf 

of the Independent Community Bankers of America ........................................ 35

Robson, Mr. Joe, Robson Companies, Broken Arrow, OK, On behalf of the 

National Association of Home Builders .............................................................. 44

Helsel, Jr., Mr. James L., RSR Realtors, Lemoyne, PA, On behalf of the 

National Association of Realtors ....................................................................... 54

Engelhardt, Dr. Gary V., Professor of Economics, Maxwell School of Citizenship and Public Affairs, Syracuse University, Syracuse, NY ........................... 69

(V) 

(1)

FULL COMMITTEE HEARING ON THE 

HOUSING CRISIS: IDENTIFYING TAX 

INCENTIVES TO STIMULATE THE 

ECONOMY 

Thursday, June 5, 2008

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10 a.m., in Room 1539, 

Longworth House Office Building, Hon. Nydia M. Vela ́zquez [Chair 

of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Gonzalez, Altmire, Ellsworth, Akin, Davis and Fallin. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELA ́ ZQUEZ. Good morning. I now call this hearing 

to order on The Housing Crisis: Identifying Tax Incentives to Stimulate the Economy. 

Today our Nation is faced with serious threats to its economic 

stability. In recent months we have witnessed skyrocketing gas 

prices, rising food costs and a weakened U.S. dollar. This and other 

factors have combined to put a strain on America’s ability to make 

ends meet in an uncertain economic environment. 

One area of our economy enduring particularly harsh challenges 

is the housing sector. Housing starts are down more than 60 percent since 2005. There has been a sharp decline in buyers, and 

there is now an 11-month supply of newly constructed homes on 

the market, almost double the normal amount. As a result, following more than 13 years of increases, home values are declining. 

In the last quarter prices fell by an annual rate of nearly 7 percent. 

And with the subprime crisis persisting, there is little hope of a 

quick turnaround. All of these factors have led to record foreclosures and could cost some 3 million American families their 

home. 

The situation poses a great threat to the Nation’s housing sector, 

a vital part of our economy. Some estimate that it comprises as 

much as 10 percent of the U.S. gross domestic product. As a result, 

it is not hard to see the drag it can put on our Nation’s overall 

growth. 

Just yesterday Fed Chairman Bernanke stated that until the 

housing market, and particularly housing prices, show signs of stabilizing, growth will remain to the down side. 

2

As the housing industry is dominated by small firms, this Committee has a particular interest in these issues. Home building, realty, lending and other related businesses are all proven job creators. However, with the drop in sales and little construction, many 

small employers have been forced to reduce staff or go out of business altogether. In fact, since February of 2006, the homebuilding 

sector has lost almost 500,000 jobs. 

One of the best avenues to boost this sector is through targeted 

tax relief. Tax incentives for affected industries could provide immediate benefits to millions of small businesses. This hearing will 

give the Committee the opportunity to evaluate some of these tax 

measures and how they can best assist the struggling housing sector. 

As this is a multifaceted problem, it is critical to look at all angles in identifying solutions. For the current crisis there needs to 

be an examination of how policies will affect the consumers, lenders and the homebuilding industry. Today the Committee will look 

specifically at a number of tax reforms included in legislation 

passed by the House and the Senate. These include the first-time 

home buyers tax credit, increasing the low-income housing tax 

credit, and extending the years companies can carry back losses. 

Each of these proposals tackles the problems in a different way. We 

will consider how and if these policies can lead to a more robust 

housing market while avoiding the pitfalls that created the problem in the first place. This approach can play a significant role in 

halting job losses and creating high-paying jobs. In the end it can 

not only help small businesses and homeowners, but the economy 

as a whole. 

I would like to thank all the witnesses for taking time out of 

your busy schedule to be with us this morning, and I now yield to 

the Ranking Member—representing Mr. Steve Chabot, Mr. Davis, 

for his opening statement. 

OPENING STATEMENT OF MR. DAVIS 

Mr. DAVIS. Thank you, Madam Chairwoman. Ranking Member 

Chabot will join us shortly, and he will give his opening statement 

at that time. In the meantime I have a brief opening statement. 

Madam Chairwoman, I appreciate you holding this hearing on 

tax incentives to stimulate the housing sector. We are in an economic downturn, and the economic market is lagging, we all know 

that. Housing prices are down, and sales volumes are depressed. 

Although Congress has passed economic stimulus legislation, it is 

useful for us to consider other incentives to help the housing industry and its related sectors. 

I look forward to hearing the testimony from our witnesses 

today. And again, Madam Chairwoman, I thank you for holding 

this hearing, and Ranking Member Chabot will be with us soon. 

Thank you. I yield back.

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Davis. And now it is 

my pleasure to welcome Mr. Dale Leppo. Mr. Leppo is the Chairman of Leppo, Inc., from Ohio. Leppo, Inc., has six company construction equipment dealerships located throughout northeast 

Ohio. Mr. Leppo will be testifying on behalf of Associated EquipVerDate 0ct 09 2002 13:35 Jun 30, 2008 Jkt 033615 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\42524.TXT LEANN
3

ment Distributors. AED is an international trade association representing 750 companies involved in the distribution, rental and 

support of equipment. 

Welcome, and you will have 5 minutes for your opening statement. 

STATEMENT OF MR. DALE LEPPO, CHAIRMAN, LEPPO RENTS/

BOBCAT OF AKRON, TALLMADGE, OHIO, ON BEHALF OF THE 

ASSOCIATED EQUIPMENT DISTRIBUTORS 

Mr. LEPPO. Good morning, and thank you, Chairwoman 

Vela ́zquez and Congressman Davis and other distinguished members of the House Small Business Committee. My name is Dale 

Leppo, and it is my pleasure to come before you today both in my 

capacity as a small business owner and as a spokesman for my industry. 

As the Chairwoman mentioned, I am Chairman of Leppo Rents/

Bobcat of Akron. We are a third-generation family-owned company 

that sells and rents construction equipment in northeast Ohio. I 

am also the 2008 chairman of the Associated Equipment Distributors Governmental Affairs Committee. We have, as the Chairwoman mentioned, hundreds of members across the country, and 

approximately 48 percent of our distributor members report annual 

revenues of under $10 million, so we are a small-business organization. 

Since mid-January, AED has urged Congress to enact a home 

purchase tax credit to stimulate the residential real estate market. 

We are pleased that both the House and Senate have passed legislation in this area; however, given signs that the residential real 

estate crisis is getting worse, AED is urging that the tax credit be 

expanded in conference beyond what has passed the House and 

Senate. 

Specifically we recommend that Congress adopt a $7,000 home 

purchase tax credit for individuals and couples regardless of income level who purchase any primary residence between June 30th 

and December 31, 2008. Why? Because the excess housing inventory on the market today has to be sold before the residential construction industry can resume its normal activity level. 

I would like to emphasize three points from my written testimony. First, the housing crisis is getting worse, not better. Last 

week the Bureau of Economic Analysis reported that home purchasing fell 25.5 percent in the first quarter of 2008. Consumer 

confidence has fallen to a 16-year low, and analysts have cited the 

housing market along with higher food and fuel prices as a primary 

cause of consumer pessimism. 

My second point is that in addition to the overall impact on the 

national economy, the downturn of the housing market is also having a direct effect on the small-business-dominated construction 

and construction equipment distribution industries. Ninety-three 

percent of AED’s members say that the housing slump has had an 

impact on their companies, and close to half saying that it has had 

a major impact. For example, in northeast Ohio, compact equipment sales have dropped 46 percent since 2005, and over the last 

year alone the skidster market is off 31 percent, and the 

miniexcavator market is off 41 percent. 

4

From the ground it is easy to see that the cause of the sharp decline in these equipment markets is a slowdown in residential construction. The fact that too many houses are sitting empty without 

buyers has led to a significant drop in new housing starts. As a result my customers, homebuilders and others, are going out of business, equipment distributors are closing branches, we are having to 

repossess equipment from nonpaying customers, and overall business activity in the construction industry is down. 

Based on discussions with my colleagues around the country, I 

believe that every one of you on this Committee has small construction industry companies in your districts facing the same challenges that we are. 

My third and final point is that a temporary broadly based home 

purchase tax credit is an effective way for Congress to address the 

housing market crisis. It would stimulate demand and slow the decline in home values, thus addressing a major economic worry and 

contributor to consumer pessimism. It would bring stability and 

confidence to the housing market, thereby speeding economic recovery. It would help make homes more affordable by effectively putting cash in the pockets of home purchasers, and the benefit of a 

home purchase tax credit would go directly to the individuals and 

families who buy homes. 

America is facing an economic crisis unlike any in a generation. 

While other recent economic slowdowns have been the result of one 

or two factors, the U.S. economy is now facing a number of challenges at once: a residential real estate slump, escalating oil and 

food prices, consumer credit prices and a weak dollar. Of all these, 

Congress is best positioned to address the residential real estate 

crisis, and we feel the most effective way to do so is through a 

home purchase tax credit. I therefore urge you on behalf of the construction industry and small businesses throughout the country to 

work with your colleagues to expand the home purchase tax credit 

in conference and enact it quickly into law. 

Thank you for holding this hearing on such an important issue, 

and we look forward to working with you and your colleagues. 

[The prepared statement of Mr. Leppo may be found in the Appendix on page 29.]

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Leppo. Our next witness is Mr. John Puffer, III. He is chairman and president of Pilot 

Bank, a community bank in Tampa, Florida. Founded by Mr. Puffer in 1987, the bank’s core customers are small business owners 

and their employees. 

Mr. Puffer will be testifying on behalf of Independent Community Bankers of America. ICBA is the Nation’s voice for community 

banks with nearly 5,000 members. 

Welcome. 

STATEMENT OF MR. JOHN PUFFER, III, CHAIRMAN AND PRESIDENT, PILOT BANK, TAMPA, FLORIDA, ON BEHALF OF THE 

INDEPENDENT COMMUNITY BANKERS OF AMERICA 

Mr. PUFFER. Good morning. My name is John Puffer, and I am 

chairman and president of Pilot Bank in Tampa, Florida. 

5

Chairwoman Vela ́zquez, Ranking Member and members of the 

Committee, I am pleased to be testifying today on behalf of the 

Independent Community Bankers of America. ICBA applauds the 

Committee for examining the tax changes, can help the troubled 

housing sector and boost small business and the economy. ICBA 

represents 5,000 community banks throughout the country with 

180 community bank members in Florida. Since Pilot Bank was 

started in 1987, it has grown to more than $240 million in assets 

and currently serves more than 15,000 customers. We pride ourselves on small business relationships and are proud to support our 

local communities in the Nation’s economy. 

Housing market woes still plague the entire U.S. economy. The 

housing troubles are particularly acute in my State of Florida. Restoring confidence in the housing market is vital to restoring economic growth. 

While it is true that some regions of the country witness 

unsustainable price appreciation and speculative buying, the weakness in housing is widespread. Recent official data showed home 

prices dropping in 43 States in the first quarter of 2008. Nationwide nearly 1 in every 194 households received a foreclosure filing 

in the first quarter. In my home State of Florida, the State recorded more than 87,000 properties in some state of foreclosure, or 

1 of every 97 households in the first quarter of this year. This is 

178 percent higher than the same period a year ago. 

Large financial institutions in general have already experienced $379 billion in asset write-downs and credit losses since the start 

of 2007. This is impairing lending to small business and exacerbating the economic downturn. 

Community banks represent the other side of the financial story. 

Community bankers live and work in towns they serve and do not 

put their customers or neighbors in loan products they could not 

possibly repay. Community banks did not cause the current turmoil 

in the housing sector, but are well positioned, well capitalized and 

willing to help. At Pilot Bank we are currently looking at additional mortgage opportunities as homeowners seek loans in a difficult credit market. 

While economists debate the chances of the Nation slipping into 

recession, severe housing market declines have already caused a 

recession in many States. Notably States like California, Nevada, 

Florida, Michigan and Ohio have all witnessed dramatic declines in 

their housing markets and associated economic decline. 

Responding to a slowing economy, ICBA was out front in early 

January with a nine-point economic stimulus plan focused on communities and small business needs. Because the troubles in the 

subprime mortgage markets quickly spread to the entire housing 

sector and broad credit markets, the ICBA included a targeted 

home buyer tax credit as the first item in its proposed stimulus 

plan. The ICBA’s economic stimulus plan recommends a $5,000 

first-time home buyer Federal tax credit for 1 year in order to jump 

start home sales, reduce unsold inventories and stabilize home 

prices and foreclosures. A first-time home buyer’s tax credit would 

provide a reasonable incentive for potential qualified buyers to get 

off the sidelines and to take advantage of low interest rates and the 

temporary tax break to purchase a home. Stabilizing home prices 

6

will lower mortgage refinancing qualification hurdles as well and 

help to keep more people in their homes. ICBA is pleased to see 

a home buyer tax credit advancing in both the House and the Senate. 

We commend recent House and Senate legislation to address the 

foreclosure problem with a voluntary program. ICBA supports the 

additional tax provisions in H.R. 3221, including allowing the Federal home loan banks to guarantee community bank letters of credit to enhance local government bonds; an additional standard deduction for State real property taxes; allowing a temporary increase 

in State mortgage revenue bond authority. ICBA also supports proposals for increasing the GSE conforming loan limit for high-cost 

housing areas. All these targeted housing incentive proposals 

would help to stem the ongoing decline in the housing sector. 

Housing activity had peaked nearly 3 years ago, and since home 

sales have fallen nearly 40 percent, housing starts more than 60 

percent, and home prices some 15 percent, it is urgent that more 

be done on the fiscal policy front to address housing. ICBA believes 

a sharp decline in real estate values must be addressed before genuine stability can be achieved in the broad credit markets and 

economy. The road to economic recovery must go through housing. 

Community banks like Pilot Bank are well positioned and prepared 

to help. 

I appreciate the opportunity to testify today on behalf of the 

Independent Community Bankers of America. Thank you. 

[The prepared statement of Mr. Puffer may be found in the Appendix on page 35.]

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Puffer. Our next witness is Mr. Joe Robson. He is the founder and president of Robson 

Companies. Robson Companies are developers of residential communities and commercial properties in Tulsa, Oklahoma. He is also 

the 2008 first vice president of the 235-member National Association of Home Builders. NAHB is a trade association that helps to 

promote the policies that make housing a national priority. 

Welcome. 

STATEMENT OF MR. JOE ROBSON, ROBSON COMPANIES, BROKEN ARROW, OKLAHOMA, ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS 

Mr. ROBSON. Thank you, Chairwoman Vela ́zquez, Congressman 

Davis and other distinguished members of the Committee. My 

name is Joe Robson, and I am a builder and developer from Tulsa, 

Oklahoma, and, again, the 2008 first vice president of the National 

Association of Home Builders. 

And, Madam Chairwoman, what you said in your opening statement is absolutely true. The housing crisis is at the core of the Nation’s economic struggle and places increasing stress on homeowners, State and local governments, and those industries connected to housing. Unfortunately, small businesses, which comprise 

the majority of the homebuilding industry, are particularly hard hit 

by this downturn. Housing starts are down by more than 60 percent from 2005, job losses are accelerating, and many homebuilders 

are reporting substantial financial losses. 

7

NAHB testified in front of this Committee previously about the 

drastic steps that small business owners are taking to generate 

capital and to keep their businesses solvent, including laying off 

workers, and, despite the tax consequences, accessing personal retirement funds. For the broader economy, if housing prices continue to fall, household consumption will decrease as household 

wealth declines. Mortgage accessibility will continue to be a challenge, and mortgage foreclosures will continue to surge. 

America’s small business owners are struggling to keep their 

heads above water. The time for targeting housing stimulus has 

come. NAHB appreciates the efforts by this economy and Congress 

to address the housing crisis and economic downturn; however, we 

respectfully ask you to go further. Both the House and Senate have 

taken important steps towards crafting a stimulus package targeting at housing, and we urge Congress to finish the work as soon 

as possible. 

As we outline in our written statement, we believe a home buyer 

tax credit is a key ingredient in any final housing stimulus compromise between the House and the Senate. NAHB applauds the 

House for including a temporary home buyer tax credit in H.R. 

3221. Under this model first-time home buyers would receive a 

$7,500 refundable tax credit for the purchase of any home to be 

used as a principal residence. A tax credit of this nature would reduce excess inventory and relieve pressure on falling home prices 

by ending the waiting strategy of some potential buyers. Furthermore, it would go a long way to restore confidence in the housing 

market for homeowners, home buyers and financial institutions, 

mitigating many elements of the current crisis. We estimate that 

this credit could increase housing sales by hundreds of thousands 

of units. 

H.R. 3221 also includes a special allocation of mortgage revenue 

bonds. By expanding the MRB program and permitting States to 

use MRB proceeds to refinance troubled mortgages, as well as for 

new lending, communities across the Nation could see reduced 

numbers of foreclosures and stabilize local property prices. 

NAHB believes that modernizing the Nation’s largest affordablehousing production program, the low-income housing tax credit, is 

an important additional component for economic stimulus. Additionally, construction of affordable housing has a direct stimulative 

effect in terms of job creation, local taxes, and wages and salaries 

paid. 

Finally, the ability of homebuilders, large and small, to have the 

ability to claim and carry back net operating loss deductions to 

years when significant taxes were paid is very important. Without 

this additional financial tool, businesses will be forced to increase 

borrowing or liquidate land and homes, only compounding the existing inventory problem and prolonging the housing crisis. 

On behalf of NAHB’s members, thank you for your efforts to 

stimulate the housing sector and help turn around our struggling 

economy. We look forward to working with this Committee as the 

process continues, and I thank you for the opportunity to testify 

today. 

[The prepared statement of Mr. Robson may be found in the Appendix on page 44.]

8

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Robson. Our next witness is Mr. James L. Helsel. Mr. Helsel is a partner with RSR Realtors, a full-service real estate company in Harrisburg. He also 

serves as 2008 treasurer of the National Association of Realtors. 

Founded in 1908, NAR is America’s largest trade association, representing more than 1.3 million members involved in all aspects of 

the residential and commercial real estate industries. 

Welcome. 

STATEMENT OF MR. JAMES L. HELSEL, JR., RSR REALTORS, 

LEMOYNE, PENNSYLVANIA, ON BEHALF OF THE NATIONAL 

ASSOCIATION OF REALTORS

Mr. HELSEL. Thank you, Madam Chairman and other distinguished members of the Committee. My name is Jim Helsel, and 

I am here in my capacity as the elected treasurer of the National 

Association of Realtors. NAR has 1.25 million members engaged 

in every aspect and facet of the real estate industry. I am also a 

partner in the full-service real estate brokerage known as RSR Realtors in Lemoyne, Pennsylvania. Thank you for this opportunity. 

The ugly dimensions of the housing crisis have been covered extensively in the media. Despite today’s challenges, it is still true 

that more than 90 percent of homeowners are current on their 

mortgages. Generally their mortgages are not under water. Home 

values continue to appreciate in about one-third of the U.S. markets and in even more neighborhoods. 

The decline in property values has not changed Americans’ basic 

perception that home ownership is good for families and good for 

communities. Our members continually report that traffic at open 

houses and property showings have been steady enough, but that 

a ′′no thanks, just looking′′ mentality dominates. The ′′just looking′′ comment is really a code for how low will prices go and how long 

will it take before they decide to make a decision. 

In February, some of NAR’s current and former tax committee 

leaders met to explore approaches that might help to create a floor 

on the market prices. Their discussion included property tax holidays, special property tax deductions, tax-exempt bonds, investor 

incentives and a home buyer tax credit. They easily agree that the 

most beneficial incentive will be a temporary tax credit that will 

change a ′′just looking′′ mood to ′′I am ready to buy.′′ Part of the 

support for a home buyer credit was based on the success of a 1975 

temporary tax credit designed to clear an oversupply of newly constructed homes during an economic downturn back then. 

We note three critical features for an optimal home buyer tax 

credit. First, it would apply to all residential real estate, not solely 

foreclosed properties. Second, a temporary credit would assure that 

prospective purchasers would have to act within a relatively short 

time. Third, the House-imposed income limits should be increased, 

particularly for single individuals. After all, there is no difference 

between the purchasing power of a single individual or a married 

couple with the same amount of income. Moreover, housing policy 

seems inconsistent when current law offers higher FHA or conforming loan limits to borrowers in high-cost housing areas, but 

then makes them ineligible for a tax credit because of income limits. 

9

We urge Congress to move quickly to conference and to final passage of this tax incentive. Failure to act quickly could further stall 

the market as prospective purchasers wait to see if they will qualify for the benefit. 

More information and further detail about the tax credits are 

provided in a chart attached at the end of our written testimony. 

The housing crisis is not limited to homeowners and buyers and 

sellers. It also affects individuals who work in any facet of the real 

estate business. We want to note for the record that many of our 

own members and other self-employed folks, such as carpenters, 

landscapers and other construction workers, will not receive the 

$600 stimulus package check this year. 

NAR’s real estate sales agent members are compensated solely 

by commission, so when the number of sales declines along with 

the prices of properties, and commission income drops, by the time 

sales agents have to deduct their allowable expenses for 2007 real 

estate sales revenues, many had no net income in their 2007 1040 

form. These folks won’t get the kick of the $600 rebate until they 

file their 2008 tax returns in 2009. 

We also want to talk about the small investor for a moment. The 

so-called small investor is a class of real estate owners that has all 

but disappeared. We need to bring these people back to the market. 

These are individuals who might own one or two single-family 

homes or condos that they offer for rent. 

Their reason for disappearance traces back to the 1986 Tax Reform Act. In 1986, Congress enacted the so-called passive loss rules 

to shut down abusive, syndicated, tax-shelter projects that were 

marketed for their tax benefits rather than for the appreciation 

and income stream these investments provided. The passive loss 

rules included an exemption to assure that individuals with moderate incomes could continue to invest in real estate as individual 

owner-landlords. The exception criteria were expressed in dollar 

amounts that were not indexed to inflation. Individuals earning 

less than $100,000 qualified to take advantage of this exception. 

In 1986, the median price for a home was $72,000, much less 

than the $100,000 investor threshold. Today the median price for 

homes hovers at about $200,000, but the investors’ income threshold is still $100,000. Had the limits for the small investor exception 

been indexed for inflation, individuals with an income of nearly 

$185,000 could more readily invest in residential real estate. NAR 

urges Congress to adjust these thresholds for the passive loss exception and index them for inflation. The return of the small investor will no doubt help shrink the current overabundance in the real 

estate inventory. 

Our written testimony provides additional information on each of 

these matters. Thanks again for the opportunity to provide these 

thoughts. I look forward to answering your questions. Thank you. 

[The prepared statement of Mr. Helsel may be found in the Appendix on page 54.]

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Helsel. And our next 

witness is Dr. Gary V. Engelhardt. Dr. Engelhardt is an associate 

professor in the economics department of the Maxwell School of 

Citizenship and Public Affairs at Syracuse University. Dr. 

10

Engelhardt’s specialties are in the economics of aging, household 

savings, employer-provided pensions, Social Security taxation and 

housing markets. 

Welcome. 

STATEMENT OF DR. GARY V. ENGELHARDT, PROFESSOR OF 

ECONOMICS, MAXWELL SCHOOL OF CITIZENSHIP AND PUBLIC AFFAIRS, SYRACUSE UNIVERSITY, SYRACUSE, NEW 

YORK 

Dr. ENGELHARDT. Thank you for inviting me. My views are my 

own and not those of Syracuse University. 

The current housing market challenges have led to call for new 

Federal legislation to stabilize the housing sector in the short run. 

The American Housing Rescue and Foreclosure Prevention Act, 

H.R. 3221, would expand housing tax incentives through a number 

of elements, the most important of which I view as being the refundable first-time home buyer tax credit, expanded temporary financing for the long-term housing tax credit for developers of affordable rental housing, and provisions for business income averaging through net loss carrybacks. 

My written testimony analyzes the desirability of each of these 

elements in detail, but let me give you my overall assessment, and 

that is because of the interplay between financial markets and financial market regulatory policy and Federal Reserve policy which 

result in economic adjustments that occur with greater speed than 

most tax-based policies, my overall assessment is that new tax incentives for housing are not an attractive solution to problems in 

the housing sector in the near term. 

In particular, tax changes are best designed to promote long-run 

growth. Effort is probably better spent on considering tax changes 

that would broaden the tax base, level the playing field, reduce tax 

rates and reduce complexity, allowing for improved long-run functioning of the economy and future revenue needs. To the extent 

that a definite need for additional preferences for housing is identified, new tax incentives should be specifically targeted to those that 

generate new investment and personal saving. 

Now, for the remainder of my time, I want to focus my comments 

on the first-time home buyer credit, which everyone seems to be 

very interested in. And this credit, which would be available to 

first-time home buyers with adjusted gross income of $70,000 or 

less if single, or $140,000 or less if married, is an important employment of this package. We know relatively little about the potential impact of these credits, so what I have done is I have analyzed a similar policy, which is the Federal tax credit for first-time 

home buyers in the District of Columbia that was first enacted in 

1997. 

The D.C. Credit has had an important impact on the housing 

market in the District. Estimates suggest that housing capital 

gains were almost 5 percentage points higher in the District relative to five comparison areas. Those comparison areas are Arlington and Fairfax Counties in Virginia, Prince George’s in Montgomery County in Maryland, and Alexandria City. In addition, it 

has had important effects in the short run, defined as the first 4 

years of the program, in the construction sector in the District. In 

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particular, the number of business establishments in the construction sector rose 20 percent. Total employment in the construction 

sector rose 30 percent. The average annual pay for individuals employed in the construction sector in the District rose 9 percent. And 

importantly, most of the gains in business establishments were 

among small businesses. Finally, building permits more than doubled. So it appears that the D.C. Credit was an unqualified success 

in terms of promoting the housing market and construction sector 

activity here in D.C. 

That said, I think there are reasons to be somewhat less optimistic about the impact of a national credit. In particular, a national credit may be less effective in bringing home buyers into the 

market for a number of reasons. First, home buying is not a snap 

decision. It involves a set of long-run trade-offs, some of which are 

not credit-related, including things like prospects for future income 

growth and uncertainty about job stability. And secondly, the tax 

credit is designed to be temporary, and this might actually exacerbate problems in the medium term. 

The idea is as follows. First of all, if you give a temporary credit 

now, you will bring buyers into the market, but who are those buyers? Some of those buyers might have been individuals who were 

going to buy a couple years down the road. So all you have done 

is you have shifted the total number of home purchases towards 

the present so that the current stimulus comes at the cost of future 

growth. 

Finally, and this is very important, is that the Federal credit of $7,500 sounds like a lot of money, but it is actually only one-quarter as generous as the District credit, and it is available to a smaller segment of the market. This substantial reduction in generosity 

and breadth of the credit will result in far less take-up of the credit 

on a national basis and hence far less housing sector stimulus. 

Thank you. 

[The prepared statement of Dr. Engelhardt may be found in the 

Appendix on page 69.]

Chairwoman VELA ́ ZQUEZ. Thank you. I would like to address my 

first question to Mr. Robson. In your testimony you mention the 

importance of a first-time buyer’s credit. And out of all the problems facing your industry, from excess inventory to declining home 

values, to increased foreclosures, what specifically about the firsttime home buyers credit will motivate people to buy a home and 

boost consumer spending? 

Mr. ROBSON. I think there are a couple of reasons. One, sitting 

in a sales office in Tulsa, Oklahoma, we see people coming in all 

the time that are just waiting. They are ready to buy a house. They 

just need that extra push to get them to do it. Part of it, frankly, 

is they read every day in the paper that maybe Congress is doing 

something, that maybe there will be a credit out there, there may 

be a special program. And I think there are people that are sitting 

on the sidelines, frankly, that are doing that. 

Secondly, even discounting that part of it, in a lot of markets 

there is simply no bottom to the market because of foreclosures, because of the overhang in inventory, and there needs to be a solidifying of the bottom of the market, otherwise there just continues 

12

to be—I think the tax credit, frankly, will go a long way to doing 

that, and it happened in the mid-1970s very successfully. 

Chairwoman VELA ́ ZQUEZ. We have two different versions; the one 

in the Senate, the one in the House of Representatives. Is there a 

magic number that you think will really motivate more buyers? 

Mr. ROBSON. I am not sure I have a magic number. I think there 

are three main principles for it to work: One, having as large a tax 

credit as possible, as far as a dollar amount; having the broadest 

pool of homes that would qualify; and thirdly, it needs to be temporary so that there is some sort of incentive to get people back 

into the market. I think with those three it would be successful. 

Chairwoman VELA ́ ZQUEZ. Mr. Helsel, we know that the membership in the real estate realtors have increased by almost 500,000 

from the year 2002 to 2006, and we know that many real estate 

companies and agents are small businesses. How has the housing 

crisis affected entrepreneurial opportunities for those in your industry? And is it fair to say that many real estate agents have either lost their job or taken a second job to make ends meet? 

Mr. HELSEL. It is actually very fair to say that, Madam Chairwoman. And I can tell you in my own company, and we are roughly 

a 60-agent company, we have lost about 15 or 17 people who have 

either literally gone out of business or who have taken a second job 

to supplement their income, because the housing market has 

slowed down to the point where they just can’t support themselves 

the way they thought they could before. So that is very true. 

Chairwoman VELA ́ ZQUEZ. Mr. Leppo, could you tell me the effect 

that is felt by communities and other small companies if businesses 

like the one that you represent experience a slowdown? Can you 

talk about the domino effect of other businesses that rely on the 

housing industry? 

Mr. LEPPO. I can think of two right off the top of my head. One 

is—and I will just use our company as an example—we have significantly reduced our advertising spending this year. That is 

money that comes out of something you really wouldn’t think is associated to housing, but it reduces the income of a lot of those advertising companies in our area. And another kind of ancillary effect is we normally buy between two and six pick-up trucks a year 

for our own transportation needs, and so far in 2008 we have 

bought zero and plan to buy zero. So then that ripples through 

both the local truck dealer, but also through the manufacturers 

and the people who provide product support for those vehicles. 

Chairwoman VELA ́ ZQUEZ. Mr. Puffer, along with the housing 

boom, there was also a tremendous growth in home equity lines, 

and homeowners took out loans for everything from home improvements to paying bills. Can you talk about the trends that the lending industry has seen in the demand for these loans, and how have 

declining home prices affected the ability of homeowners to secure 

home equity lines of credit? 

Mr. PUFFER. I will be happy to, Chairwoman Vela ́zquez. 

With respect to what has occurred in the ability to provide home 

equity lines of credit, the decline in house prices has had a tremendous negative effect, because it has in many case eliminated equity, 

particularly for homeowners who purchased in recent years. And 

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the regulatory structure is such that it is not possible for banks to 

loan money without equity. 

The second factor is that there have been two approaches to 

home equity lines of credit, and I am proud to say that community 

banks have always used good underwriting standards and not encouraged homeowners to borrow more than is appropriate. You 

don’t see community banks lending 125 percent of the value of the 

homes and increasing the economic turmoil. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Dr. Engelhardt, you noted that home buyers will simply not be 

enticed to purchase a home because of the first-time buyer credit. 

However, when this country was faced with excess housing inventory during the mid-1970s, a $2,000 credit was passed, and nearly 

500,000 people used the tax credit. Doesn’t this provide evidence 

that such a tax credit could incentivize certain individuals? 

Dr. ENGELHARDT. 1975 was a long time ago. 

Chairwoman VELA ́ ZQUEZ. 1970. 

Dr. ENGELHARDT. 1970. Even longer. So first of all, I think that 

evidence is probably a little bit dated. The housing market was 

quite different. The financial markets were extremely different in 

terms of the ability to get mortgage credit. So I am not sure that 

that experience translates to what we would see today. 

Chairwoman VELA ́ ZQUEZ. I am sorry, you said that the economic 

environment was different? 

Dr. ENGELHARDT. Absolutely. 

Chairwoman VELA ́ ZQUEZ. But if I recall, or based on what I have 

read about the 1970s, we faced high inflation, didn’t we, gas prices, 

and we had an excess housing inventory? So is there some similarities? 

Dr. ENGELHARDT. Yes, there are some similarities, but there are 

a lot of differences on the financial side. And a lot of the current 

problems are propagated by problems in the financial sector, so 

there are some important differences. 

I think one of the key differences is you have to ask yourself do 

we really think that there is a large pool of potential first-time 

home buyers out there who already haven’t bought homes in the 

last decade through all the other initiatives that have gone on, Federal initiatives especially? Is there a large army out there of potential buyers? It is not clear to me that there are. 

I think the long-run demographics are quite favorable actually 

for the housing and construction sector, because you have got the 

baby boomers aging into older housing needs that will need to be 

addressed, and then you have got their children who are currently 

in college that will be aging into the first-time buyer market in the 

next decade. I think those demographics are very favorable. 

But right now it seems to me that it is unlikely that there is a 

large army out there of potential individuals that would come in 

that are in addition to those who would otherwise come in in a couple of years, so that, again, short-run stimulus might come at the 

cost of medium-run or long-run growth in the first-time home 

buyer market. 

Chairwoman VELA ́ ZQUEZ. Mr. Robson, I would like to hear your 

comments on this matter. 

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Mr. ROBSON. Well, actually about 40 percent, or at least our 

analysis show about 40 percent of all new homeowners every year 

are first-time home buyers. So I think that kind of flies in the face 

of Dr. Engelhardt’s comments. I am not sure whether the realtors 

have that data, but they are simply not in the market right now. 

As someone that goes to a sales office every day, and we do sell 

to some first-time home buyers, they are waiting, they are waiting 

on the sidelines. 

Chairwoman VELA ́ ZQUEZ. Dr. Engelhardt, do you think that or 

would you agree that there will be some buyers on the margins 

who will purchase a home because of the credit? 

Dr. ENGELHARDT. Yes, there will be some. The question is whether there will be enough. The key is what fraction of the total number of homeowners are first-time buyers. It is true that of the fraction of buyers, first-time buyers are a large fraction. But of all 

homeowners, first-time buyers are a very small fraction. And if 

these housing market problems are widespread, there are 

marketwide problems that are affecting all homeowners, or at least 

all homeowners with mortgages. That is a much, much larger 

group than just the narrow slice of first-time buyers. And the question is can the activity of just the first-time buyers, that narrow 

slice, be enough to support or prop up what seems to be a very 

strong marketwide phenomenon? 

You are talking about a situation, and you have to ask yourself, 

in places like—nationally prices have declined 14 percent in the 

last year, and in hard-hit areas like California and Florida, do we 

really believe that a small slice of the market coming in, like firsttime buyers, will really prop up price declines at 14 percent or 

more? I just don’t think that that is a realistic scenario. It is going 

to help, but will it help enough? And what are the trade-offs, what 

are the other things that can be done? And those are the key questions. 

Chairwoman VELA ́ ZQUEZ. Mr. Davis. 

Mr. DAVIS. Thank you, Madam Chairwoman. 

Mr. Robson, I would like to start with you. NAA economist David 

Sodders has said that the biggest economic boost for the buck 

would be to provide a temporary home buyer tax credit. Would you 

elaborate on why you think this credit provides the most positive 

effect? 

Mr. ROBSON. I think it kind of relates to my earlier answer. 

When you look at the markets, because of foreclosures, and every 

time a foreclosure happens, there is about a 30 percent discount 

that happens because of the whole process. So you have got just 

this multilayer of foreclosure and overhanging inventory, and simply nobody knows when to get in. They don’t want to buy a house 

today if they can buy it cheaper a month from now or 2 months 

from now, and that is the psychology that is going into the market 

right now. 

There are a lot of people that can qualify for homes and are looking. Actually, people coming through sales offices are up in a lot 

of markets, but their sales are down. So people are looking. It is 

simply a matter—and that is what the tax credit would do. If it is 

a limited time, it gets people off the dime and gets them possibly 

to buy a home. 

15

Mr. DAVIS. So you think a limited tax credit so people know you 

have got to do it between now and now so you get into the market, 

you make the decision and sign your name? 

Mr. ROBSON. Right. Yes, sir. And frankly, it ought to be long 

enough to go into kind of next year’s prime selling season in the 

spring. 

Mr. DAVIS. Okay. How would the opportunity to carry back net 

operating losses to years as soon as taxes were paid help the homebuilders? 

Mr. ROBSON. Well, it would help everybody. I think there is a lot 

of misconception about that, that this is just something for the big 

guys or big business or small business. But the fact is if you look 

at IRS analysis, most losses that are filed are on individual returns 

from pass-throughs through small business, sole proprietorships, 

partnerships and that sort of thing. And what we are really doing 

is—I mean, there is ways of kind of stretching those out for a long 

period of time as far as losses going forward. 

This simply goes back in the years when they were paying taxes. 

It actually lets them recapture some of those, because frankly, especially on builders and that sort of thing, they have been having 

capital calls. I mean, there is a huge need for capital, and this is 

a source that they would be able to use to survive until they can 

start making profits again. 

Mr. DAVIS. If the Federal Government holds onto that money 

that you paid in in the good years, then in effect you would have 

to go back over to Mr. Puffer and borrow that money to continue 

to stay in business or go out of business; is that what I hear you 

saying? 

Mr. ROBSON. That’s correct, sir. 

Mr. DAVIS. There is some talk in Washington about increasing 

the budget and suspending here in Washington. If that takes place, 

there is the potential that the 2001, 2003 tax cuts would be eliminated, and that would put an extra burden of $2,000 per family in 

new taxes. What effect would that have on housing, in your opinion? 

Mr. ROBSON. Well, I think any new taxes in a down economy 

would probably not be very good. I haven’t heard that particular 

proposal, and I am not an economist and a tax advisor, but as a 

businessman I don’t think I would like it much right now. Of 

course, if you are not making any money, it doesn’t matter, so—

Mr. DAVIS. You don’t pay taxes if you are not making it. 

Mr. ROBSON. That’s right. 

Mr. DAVIS. Thank you. 

Mr. Puffer, I have been a small-business owner myself, and I 

have actually put my home up to start a small business. Can you 

tell me the effect that lowering equity in a home will have on 

small-business owners to go out there and take a risk and start 

new businesses to create the jobs that keep the American economy 

going? 

Mr. PUFFER. Congressman Davis, it creates a real challenge for 

small-business owners. The focus of community banks is on lending 

to small businesses, and we often have the opportunity to make 

loans to relatively new businesses and certainly even start-up businesses, and good credit techniques require that lenders have collatVerDate 0ct 09 2002 13:35 Jun 30, 2008 Jkt 033615 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\42524.TXT LEANN
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eral. And often equity in a home is the only collateral that someone 

has that is starting a business. So it is absolutely essential for the 

overall welfare of the economy to do something that stimulates the 

purchases of homes and turns around the decline in the housing industry. 

Mr. DAVIS. That independent Community Bankers Association 

has strongly supported a temporary, targeted first-time home buyer 

tax credit to jumpstart the home sales and stimulate our overall 

economy. As you noted in your testimony, there is a difference in 

the House version and in the Senate version. Can you tell me 

which would be best? 

Mr. PUFFER. I am not sure that it is one or the other. A witness 

stated that there is magic to the number. I think the number has 

to be significant enough to be meaningful to encourage folks to buy. 

I am not an economist, but my observation is that so much of economics is psychological, and people need to have a reason in a 

down economy to consider to think that the opportunity is right, 

and one of the ways to do that is to have a targeted tax incentive. 

I also, and the ICBA agrees, that it should be of limited duration, 

long enough so that people can make buying decisions, but not so 

long that people will think that it is always available to them. 

Mr. DAVIS. Thank you. 

Mr. Helsel, I want to let you follow up on that, if you would. You 

say in your testimony that you think it should be temporary. Could 

you tell me why you think it needs to be temporary and how long 

temporary means to you? 

Mr. HELSEL. First I would say, Congressman, that temporary to 

me would be probably not less than a year and probably not more 

than 18 months. For some of the similar reasons that have already 

been mentioned, we want it to stimulate the market; we don’t want 

this to be an ongoing tax incentive. I don’t think that solves the 

problem. The intent is to stimulate home buying. It is not to do 

anything more than that from a practical standpoint. If you leave 

it going forever, it doesn’t stimulate people that get into the marketplace now, which is really what we want them to do. 

It is an interesting problem that we all have right now. If you 

really back up into things, it is a whole economic stabilization of 

the country. The housing market has led the economy for the past 

7 or 8 years. And now we are at the lower end of that, and my own 

members are at the lower end of that, and we need to do something 

to restimulate not just the housing market, but the economy as 

well, and this does all of that. 

So the tax incentive is what I think everyone here at the table 

seeks. We may not all agree on how, Dr. Engelhardt has a different 

view, but I don’t think anybody will disagree that the tax incentive 

is the right way to go. Short term is better than long term; 12, 15, 

18 months. We want people to see it, know they have a short time 

to get in, begin the process and move forward from there. 

Mr. DAVIS. Thank you. 

Mr. Leppo, I am going to have you follow up on that. You said 

in your written testimony that the window of opportunity is narrow 

for enacting the first-time home buyer credit. Why do you believe 

it is essential to act now? 

17

Mr. LEPPO. Well, this is an anecdotal piece of evidence, but last 

night I met a couple for the first time. The question was, why are 

you in town? I told them why I was in town; to promote this tax 

credit for home buying. And they said, we are poster children for 

what you are talking about. We want to buy a house, we are sitting 

on the sidelines, we are waiting to see a bottom, we are waiting 

to have a reason to buy a house. 

And to the message that several of other people have put out 

here, the market just continues to spiral in the wrong direction, 

and we need to create a bottom. And by bringing some of those people who are sitting on the sidelines in, I think we can create that 

bottom and then build up from that point. 

Mr. DAVIS. I think indeed it is important as a first-time home 

buyer credit that it is available to all regardless of income and applicable status of the home, new, existing, foreclosure, in order to 

maximize the credit’s effectiveness. Please amplify on the need to 

have this credit applied broadly. 

Mr. LEPPO. I will use another example of another tax incentive 

that has had a significant positive effect on our business, and that 

is the depreciation bonus. The depreciation bonus, when that was 

in effect earlier in this decade and now has been reinstituted in 

2008, we have seen purchasing decisions by our customers driven 

by that tax incentive. And in the first pass of the depreciation 

bonus, we were concerned that when it was over, that buyers 

would be gone and there wouldn’t be any buyers left. That is not 

what happened. It actually accomplished what both the Congress 

and we had hoped it would, which was to bring buyers into the 

marketplace, have them buy more equipment, increase the efficiencies of their companies, make them more productive. And so we 

think that it is a good way to create a stimulus for the entire economy. 

Mr. DAVIS. I asked a question earlier to one of the other witnesses about the potential for the 2001, 2003 tax cuts to go away 

and the potential for each family to have a burden of an extra 

$2,000. What effect do you think that would have on your business 

in particular and on the economy as a whole? 

Mr. LEPPO. One of my concerns is that our costs of running our 

business are going up fairly significantly, and our revenues and 

ability to generate margin aren’t. And that means that that is putting pressure on some of our coworkers from our ability to look at 

wage increases. My coworkers are seeing increased cost of fuel, increased cost of food, increased costs on them. One of the effects I 

see is that if we continue with the current economic slowdown for 

an extended period, they are buying—their discretionary income is 

going to significantly decrease, and that will just make the spiral 

continue because we can’t raise their wages right now. 

Mr. DAVIS. Thank you. 

And, Dr. Engelhardt, in your written testimony you mention several guiding principles for any discussion of tax reform, including 

reducing complexity and generating stability. In your view, why 

are these principles so important? 

Dr. ENGELHARDT. Well, because Tax Code complexity imposes 

very substantial costs in terms of compliance and in terms of just 

understanding the Tax Code. 

18

Secondly, stability is very important. There has just been a tremendous increase in the reliance on sunsetting, and I think a lot 

of that has been driven by revenue concerns, and many of the provisions in H.R. 3221 would be sunset as well. And what sunsetting 

does is it creates uncertainty about where the Tax Code is going, 

and that uncertainty has some costs. Because a certain Tax Code 

that is stable provides a good environment for individuals and businesses to make wise decisions. And just even the questions you 

were asking about the previous tax cuts, that just creates a lot of 

uncertainty. So I would—you know, I would advocate for a decreased reliance on sunsetting and thinking more about permanent 

tax changes that make sense. 

Mr. DAVIS. Okay. One last question. Generally, what are the best 

short- and long-term solutions to help small businesses affected by 

the housing slowdown, in your opinion? 

Dr. ENGELHARDT. Well, I think the key is there are a number of 

things that the government can do. I am not saying the government should do nothing, but the question is whether tax policy is 

the right response. If a lot of the problems are caused because of 

problems in the financial markets, okay, why do we have—then 

maybe this should be addressed through financial market policies. 

For example, if we have a large inventory of homes that have 

been foreclosed upon, there are a couple ways to get rid of it. One 

is to have a home buyer tax credit or get more buyers in the market. The other is to just to try to prevent foreclosures, and there 

are a whole set of options on the financial side that could address 

that. And that would be probably much more widespread than targeting the thin part of the first-time home buyer market. 

Chairwoman VELA ́ ZQUEZ. Would the gentleman yield? 

Mr. DAVIS. I yield back. 

Chairwoman VELA ́ ZQUEZ. Would you support a regulation as a 

way to prevent foreclosure? 

Dr. ENGELHARDT. Changes on the financial side—

Chairwoman VELA ́ ZQUEZ. Other side, let’s put it that way. 

Dr. ENGELHARDT. Right. 

Chairwoman VELA ́ ZQUEZ. Better oversight. 

Dr. ENGELHARDT. Better oversight and changes on the regulatory 

side that would allow individuals to stay in their homes longer 

would I think provide a more effective bottom to the market in 

places that have been really hard hit and probably should have 

been done earlier in retrospect than it is now. But to prevent further damage I think that is potentially a better way in the short 

run to address the problem than through tax-based policies. 

Like I said in my testimony, tax-based policies are great, but 

they are kind of like the tortoise. They win in the long run. They 

are just not very good for managing short-run economic fluctuations. 

And I might add I am somewhat perplexed about the support for 

just a temporary home buyer tax credit. If a temporary home buyer 

tax credit is going to be so stimulative to bring home buyers in the 

market, why isn’t there support for a permanent home buyer tax 

credit and just bring even more people in the market in the long 

run? 

19

So I think it is better if you use other policy tools to address 

these problems. These problems are real. I am not saying that they 

are not. But I think there are other tools available, and I think 

that tax policy is not the best tool. 

Chairwoman VELA ́ ZQUEZ. Thank you for yielding. 

Mr. DAVIS. I yield back. 

Chairwoman VELA ́ ZQUEZ. Mr. Gonzalez. 

Mr. GONZALEZ. Thank you very much. 

I apologize for getting here so late, and I apologize to the witnesses. But thanks to the Chair for having this hearing. 

Our concern is always going to be the impact on small businesses. Dr. Engelhardt, I think you pointed out why are we doing 

this short-term if it is good? Why shouldn’t we do it long-term? You 

are making way too much sense for Washington. There is a lot of 

truth to what you are saying. 

I guess my concern has always been that when it comes to vulnerability and such in economic downturns, it is all going to be 

small businesses that generally will not have the resources to last 

longer than, let’s say, some of the bigger operations. It is just the 

way it is. And then you are caught in the middle of what has been 

basically the meltdown of our credit markets. When that happens, 

it is just not Bear Stearns, it is just not Citigroup, we are really 

talking about everyone that wants to go out there and borrow 

money and loans. So it is small businesses that have always had 

a hard time when it comes to access to capital that is really aggravated. And now it is crunch time, they probably need an infusion 

of resources, money and such to get over the hump with reduced 

sales, reduced products and services. 

Because the housing market is not what it used to be. We don’t 

have the construction and all of that that it encompasses in the 

way of small businesses being very active, and what really propped 

up our economy for so long is no longer there. 

I will say this about the independent bankers: if our commercial 

and investment bankers had followed the good philosophies of our 

community and independent bankers, we wouldn’t be in the situation that we are in. 

I am going to lead up to something, but we are trying to come 

up with something here, looking at the big picture. And hopefully 

it will pay dividends to the small businessman and woman in freeing up monies so that there are monies to be borrowed and loaned 

and such so they can survive the downturn. 

So some of this is somewhat temporary. And I guess what I 

wanted to—this is the way Representative Frank has characterized 

it, and I love the way he said it and I hope this does not offend 

anybody—the economy has been taken hostage by people that 

made some very bad decisions. The answer is to pay as little ransom as possible to the least ill-deserving people we can find. But 

that is the reality, I mean, and it is a sad state of affairs. But I 

think Chairman Frank and I think his piece of legislation is the 

best. 

I don’t know eventually what we will end up with, but what we 

are trying to do is restore some value to people holding a bunch 

of paper out there. The administration believes it be can be done 

20

voluntarily. I don’t think that is going to happen. Dr. Engelhardt, 

and I believe, is it Mr. Puffer, is that correct? 

Mr. PUFFER. Correct. 

Mr. GONZALEZ. The bankers, not that the others wouldn’t know 

the situation, but you are probably not just looking at reduction of 

interest, you are looking at reduction of principal. And are we 

going to have people willing to do that? And the legislation we are 

proposing is totally different from some voluntary plan that the 

President has attempted to do. So you are going to see a legislative 

fix. 

But the whole question to all of you is how do you see the credit 

markets and what we refer to as the meltdown impacting small 

businesses? Is it, first of all, the availability of this thing about access to capital? I mean, we always think in terms of start-ups. 

Well, it does impact start-ups, but ongoing small businesses, when 

there is a downturn, how do you see this impacting their ability to 

withstand and get over this hump when the credit markets are in 

the state that they are? And I know we are talking about tax incentives and such, but I like to think that we really need to be 

doing something on the availability of capital. 

And so I will just go down the line of the witnesses and what 

is your opinion as far as the impact? 

Mr. LEPPO. The biggest impact we see, Congressman, is on our 

essentially first-time buyer for a piece of construction equipment, 

the guy who wants to get in business, the landscaper, the concrete 

contractor who wants to get started, he is struggling to get approved to buy equipment. That means you don’t get the ball rolling 

on the new business starting and all the good that comes from 

that. That is where we see the biggest impact is on the new entry 

start-up businesses. The credit companies have tightened their requirements on people borrowing who are relatively new in business. 

Mr. GONZALEZ. Thank you. 

Mr. Puffer. 

Mr. PUFFER. Quite frankly, Congressman Gonzalez, one of the 

concerns that bankers have is that there will be regulatory overreaction to the crisis. For example, there is a strong focus now on 

evaluating the worth of the collateral that banks currently hold, 

and that has required examiner pressure comes even when loans 

are performing. And if that is taken to its extreme, the result will 

be to discourage community banks from lending because of the regulatory constraint just based on artificial concern about appraised 

values and that would have a significant impact on lending. 

In the current environment, the community banks are the ones 

that are available and willing to provide capital to the small businesses in their communities; and we hope that the regulatory environment will be such that that ability is not reduced. 

Mr. GONZALEZ. Yes, sir. And I do want to tell you that we are 

sensitive to who created the situation and the practices that we 

have to address without going in and having the collateral damage 

to the innocent bystanders. 

Mr. Robson. 

Mr. ROBSON. Well, I think you really hit it on the head. We are 

in falling collateral valuations. And I am speaking primarily from 

21

the Home Builders Association, but even in some of those markets 

there are viable projects because of some of the guidelines, new 

guidelines that the bank regulators have come out with. They 

aren’t lending. So, you know, part of the problem is how do you get 

out of a business situation if you can’t borrow the money even on 

a good project that cash flows, even with some history, where, you 

know, bankers are pulling in even commitments halfway through 

a project? 

It is a very tough situation. And, you know, that is why we have 

got to have some sort of stabilization of the actual values of homes 

and land and the collateral that the banks are taking so that we 

can start moving forward again. Because until that happens, we 

are not going to get there. 

Mr. GONZALEZ. Mr. Helsel. 

Mr. HELSEL. Thank you, Congressman. 

I hate to be fourth in this line because I don’t want to repeat the 

same thing that the fellows to my right said, so I will say it a little 

bit differently but kind of the same thing. 

The real estate industry touches so many other industries across 

the country. It touches almost every type of small business that 

there is. So every small business that is being hurt right now affects the real estate industry and affects the National Association 

of Realtors’ members and affects each of us on a daily basis. We 

see things like Mr. Robson said, where commitments are pulled 

when a project is somewhere in the middle. I mean, it is very difficult to work in an industry when you are not sure whether the 

people you are working with, who have to be able to borrow money, 

can’t borrow money. Because it ends up affecting my own members 

and my own association. 

But the credit crunch has trickled down to us from so many 

places ahead of us that I am not sure where I would say it hasn’t 

affected our industry or any of the other industries, because the 

credit crunch has touched so many different people. 

The lending requirements and the regulatory processes that are 

being used now make it difficult for anyone to borrow money when 

credit scores have to be higher even at the individual purchase 

level. Credit score ratings have to be so much higher now, it goes 

down to the individual purchaser of a home, the people who build 

the homes, the people who sell the equipment to build the homes, 

all of the things that go along with it. It just goes on and on and 

on. 

Mr. GONZALEZ. Dr. Engelhardt. 

Dr. ENGELHARDT. Yeah, these credit effects are real. And I guess 

what I would say again, it is about trade-offs, if you are thinking 

about tax policy, to get back to Mr. Leppo’s comments. 

One alternative to things like net loss carry-backs, which are not 

a targeted form of tax incentive for new investment, would be 

something like expensing, the temporary—basically, temporary expensing. Expensing is quite effective in generating new capital purchases and investment and would help individuals along the lines 

that Mr. Leppo said but is targeted towards new investment and 

does not change tax liability paid in the past. It affects cash flow, 

which is going to be, of course, the primary source of financing 

when there is a credit crunch for these small businesses, but it 

22

does it in a way that promotes new capital purchases. And I think 

that is probably a better way to go. 

Mr. GONZALEZ. Well, thank you all very much. 

Again, I apologize for my tardiness; and I yield back, Madam 

Chair. Thank you. 

Chairwoman VELA ́ ZQUEZ. Ms. Fallin. 

Ms. FALLIN. Thank you, Madam Chair. I appreciate recognition 

here today and say welcome to all of you. Sorry I didn’t get to hear 

some of your testimony, but I have your testimony in writing here. 

I want to welcome my Oklahoman here, Mr. Robson, who has 

joined us here today, and appreciate all you do for the National 

Home Builders Association. 

I had a question for you, Joe. You talked in your testimony about 

collateral damage and some of the trickle-down effects of some of 

the policy that we are looking at here in Washington, D.C.; and you 

talked about the issue of allowing home prices and the home market to self-correct versus taking action here in Congress. Could you 

explain what you mean by the collateral damage and some of the 

trickle-down effect that self-correction in the market could have 

upon the housing market? 

Mr. ROBSON. I guess, if nothing is done, you know, what is my 

vision? It is not very good. Congressman Fallin, you were in the 

Oklahoma in the ’80s; and that was the oil bust days. And when 

you look around the country, it is really kind of the rest of the 

country upside down, as we were in the ’80s. We didn’t have congressional help; and we had values that fell 40, 50, 60 percent. You 

know, it wiped out people’s savings. And it wasn’t people that were 

involved, it was people that were innocent bystanders that lost everything. And they just went to work every day. They were small 

businesses. They were people that worked with their hands. They 

lost everything because of a spiraling devaluation of real estate values and general business conditions. 

You know, and, fortunately, we were a pretty small geographic 

group at the time. But it is on a much larger scale today. I mean, 

this is really national in scope. And even where Oklahoma is okay 

today, we are starting to see value declines just because of perception. We are at 2.9 percent unemployment, and we are starting to 

see value declines. And so it is a consumer confidence aspect. I 

mean, people look and read the paper every day, and unless we do 

something and kind of set the bottom of it, it is going to continue 

to spiral down. 

Ms. FALLIN. So do you see this time period being even worse 

than the 1980s, when we had the oil crunch and—

Mr. ROBSON. I see it as that. If you look at our numbers, this 

is the largest downturn since the Great Depression as far as housing starts are concerned. 

Ms. FALLIN. Okay. Let me ask you one other question. You 

talked about the excess inventory problem and how it could be compounded if you didn’t have the—if you had the inability to carry 

back net operating losses. Would you talk just a few more minutes 

about that, how that affects investment and—

Mr. ROBSON. Well, I think it is simply a lifeline. It is a lifeline 

to small businesses. You know, is it going to stimulate the economy? It will keep people in businesses maybe long enough for the 

23

economy to turn around. I mean, that really is what it is. Because 

they don’t have anywhere else to go. And all of us answered the 

credit crisis question, you know, if you are not making much 

money, if there are capital calls with the new criteria that community banks are looking at borrowing money or lending money, there 

is nowhere else to go. And so, you know, being able to go back and 

tap taxes you paid a couple of years ago could give you the lifeline 

to stay in business to keep people employed, to pay down creditors, 

and keep you alive until the market turns. 

Ms. FALLIN. All right. Thank you so much. 

Let me ask Dr. Engelhardt one question, if I can. In your testimony, your conclusion, you stated that new tax incentives should 

be targeted towards promoting new investment and personal savings. Can you elaborate on that? And what would you recommend? 

Dr. ENGELHARDT. Well, in general, you want a tax system that 

has a broad base, low tax rates, and is not terribly complex. We 

really have none of that currently. But that is a slightly different 

topic. 

I would say if you are going to have preferential tax treatment—

by the way, the housing sector has the most preferential tax treatment of any sector in the economy. The biggest tax expenditure in 

the Federal budget is for the housing sector. So it is not as if it 

is like the forgotten stepchild here of the tax system. 

The question is, do we need additional incentives on top of that? 

And my view, and I think this is the consensus view of economists, 

is new incentives should be targeted just to activities that substantially and demonstrably increase new business capital formation 

and saving and because those are the engines of long-run growth 

in the economy. 

Ms. FALLIN. Okay. Thank you, Madam Chairman. I think my 

time has ran out. Thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Helsel, you mentioned how increasing the threshold for the 

passive loss exception will shrink the overabundance of real estate 

inventory. This will be targeted to investors, some of whom have 

been blamed for the current crisis. Can you talk about how this 

provision balances the interests of small investors, while not artificially increasing real estate values? 

Mr. HELSEL. Congresswoman, a couple thoughts on that, I guess. 

First, I would want to make sure that the regulatory process and 

that the funding processes, the financing processes were held at a 

level that made sure that the people that came in under the passive loss rules did so—were true small investors. Because if we go 

to larger groups, it compounds the problem and doesn’t fix it. 

And if you read my testimony the whole way through, my written testimony, you will see that I speak specifically of the small 

private individual investors, not the large investment groups that 

I think to some degree didn’t do us any good with the way things 

were done. If the passive loss rules are applied and if the dollars 

are indexed to inflation both in terms of the dollar amount of the 

person’s income as well as the dollar amount of the property being 

involved in the process, it will stimulate people who can’t right now 

get into it because of the difference in their income levels. 

Chairwoman VELA ́ ZQUEZ. Okay. Thank you. 

24

Dr. Engelhardt, the Low Income Housing Tax Credit has been 

praised as an efficient means of raising capital for affordable housing. However, in your testimony, you note that it could be better 

targeted if it were limited to poor neighborhoods. How would this 

type of change be structured? 

Dr. ENGELHARDT. Right. So the evidence is that the Low Income 

Housing Tax Credit basically substitutes for residential investment 

that otherwise would have been done in higher-income neighborhoods but does provide substantial stimulus to construction in 

lower-income neighborhoods that otherwise wouldn’t have been 

done. 

It could be targeted that way quite easily. There are already provisions in the law that give basically different generosity levels, depending upon whether it is a higher-income or a lower-income 

neighborhood. Those could be expanded, strengthened. There are a 

number of ways to do it. It is very doable. 

Chairwoman VELA ́ ZQUEZ. Okay. Any other member wishes to ask 

any other questions? Mr. Gonzalez? 

Well, again, I want to thank all of you; and, hopefully, we could 

get the House and Senate to come together and reach a compromise. I know that is the right thing to do. 

I want to take this opportunity once again to thank all the witnesses for being here. 

I ask unanimous consent that Members will have 5 days to submit a statement and supportive materials for the record. Without 

objection, so ordered. 

This hearing is now adjourned. 

[Whereupon, at 11:24 a.m., the Committee was adjourned.]

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