Comment & Analysis

After weeks of political wrangling, the Senate finally put the Unemployment Compensation Act of 2009 to bed. It passed the Senate unanimously on the evening of Nov. 4 after an earlier vote to invoke cloture passed 97-1. The bill is expected to sail through the House on Nov. 5. The bill now goes to President Obama, where he is expected to sign it into law.

While the bill has two consumer-friendly provisions -- an extension of unemployment insurance for 20 weeks and an extension of the soon-to-expire first-time-homebuyer tax-credit program until Apr. 30 -- it also caters to U.S. businesses that have been scarred by the recession. A provision to extend net-operating-loss carrybacks from two years to five for businesses of all sizes will pour $34 billion back into Corporate America's coffers, according to a study done by the National Bureau of Economic Research. It will allow companies, namely homebuilders, to offset the past two years' losses and refrain from cutting tens of thousands of jobs.

The unanimous vote in the politically fractured Senate came about because both Republicans and Democrats got something they wanted out of the bill, policy analysts say. Republicans backed the net-operating-loss extension because it was heavily supported by the business community. Both sides pushed for an extension of the homebuyers' tax credit, and Democrats strongly favored an extension of unemployment insurance benefits. "That's the beautiful thing about this bill," says Anne Mathias, senior vice-president and director of research at Concept Capital, a Washington research firm. "Everybody wins two-thirds. You accept the piece you don't like because you get two pieces in return."

Homebuilders' Bonanza

The net-operating-loss tax credit's biggest beneficiaries will be homebuilders, according to a study done by Chris Senyek, an accounting and tax policy analyst at research firm ISI Group. Of the top 10 companies that stand to benefit, 6 are homebuilders -- including prominent firms like Beazer Homes (BZH) and Standard Pacific (SPF) .

While housing companies will be bolstered by the massive tax break, analysts don't anticipate that the net-operating-loss provision or the homebuyers' tax credit will have much impact on home sales. The first-time homebuyer's tax credit, which was created earlier this year as part of the $787 billion stimulus package, has been credited with improving the dismal housing market this fall, but that may not happen as the program enters its second year. In a Nov. 3 report, Goldman Sachs (NYSE: GS - news) (GS) economist Alec Phillips estimated that new home sales wouldn't be driven by an extension as much as lawmakers hoped. "The extension of the current credit will probably result in some incremental first-time buying but not as much as the last one," Phillips says. "The expansion to the other population of buyers [existing homeowners] will provide a small boost to prices, but no more than 1%."

Analysts say the impact of the net-operating-loss carryback extension will go well beyond benefits to homebuilders. From retailers to manufacturers to small banks [larger financial institutions that received money from the Troubled Asset Relief Program are exempt from the operating-loss carryback extension], experts agree that numerous sectors will reap the rewards of the business-friendly legislation. "I think the net-operating-loss provisions are beneficial to a very wide swath of companies of all sizes," says Mathias. "[It will help] really any sector that has been hurt by this downturn."