Home Tax Credit Called Successful, But Costly
That's the headline on David Kocieniewski's article on the front page of the business section of this morning's New York Times. Successful is defined as giving $12.6 billion to 1.8 million taxpayers who have enough income and a high enough credit score in this economy to buy a house. Most of them would have bought that house without the credit, but its very difficult to prove because we'll never know how many homes would have been purchased if the credit had not been enacted. We do know that the Treasury Inspector General chided the IRS last September for allowing many taxpayers to claim the credit without having to prove they purchased a home. We also know that housing prices have stabilized in many markets where the credit seems to have been used by many purchasers, and we'll soon find out whether those prices start sliding again when the credit expires at midnight Friday, April 30. I can't prove it, but I believe the home purchase tax credit just shifted future home purchase to the present and that we'll see fewer future home purchases in equal proportion.
I am biased by my experience formulating the first homebuyer tax credit enacted in 1975.
This Urban Institute - Brookings Institution Tax Policy Center assessment and this Center for Budget and Policy Priorities paper express my concerns in more detail.
This describes my situation perfectly.
I am one of those people you refer to who would "buy a house anyway without the credit," although I had been planning to put it off for 2 or 3 years to pay off more personal debt.
Instead, I'm buying the house now because the $8000 is so much larger than the extra interest I'll be paying on my debt, even compounded over 3 years.
Yes, a sample size of 1 does not conclusively prove your point, but I am sure there are thousands more like me who are merely using this credit to "time shift" planned expenditures.
-Adam in Pennsylvania
This describes my situation perfectly.
Thanks.
could we pretend to be recovering without those transactions?
Take those moved-forward transactions and their effects (moving companies, storage places, etc.) out of the economy and I doubt we would be talking about how the recovery dates to June or July of last year.
Inefficient? Certainly; ridiculously so, as shown by the expectation that about 12.5% of the buyers won't get the full credit (12.6/14.4). Not to mention artificially inflating marks on houses so that banks appear capitalized. (I believe that is considered a feature, not a bug.)
The alternative would be admitting that lending hasn't recovered, credit hasn't recovered, demand hasn't recovered, and let's not even think about employment.
Adjust the GDP figures for Cash for Clunkers and the homebuying "tax credit"--read, interest subsidy to the mortgage lenders (who probably need it)--and you'll note that the demand shift is how Hoenig justifies tightening even as his town loses one house every 12 hours.
could we pretend to be recovering without these transactions?
Yes, it's very difficult to peel away the stimulus and the gimmicks to see what works and what doesn't. I would offer jobless recovery as a symptom strongly suggesting that much is still not right.