TaxVox, a Tax Policy Center blog, sighs that this extended tax credit, which follows on the heels of Cash for Clunkers, a credit for car swaps, presages a future in which tax credits are handed out like cars on a special episode of Oprah.
Bob Williams has some fun with this, imagining a dystopia with tax credits for new stock buyers, for "real" (paper) book buyers, and for Yuletide gifts bought using "handwritten letters to Santa from children under age 15 who live with relatives at least nine months during 2009 and still believe in Santa, the tooth fairy, and the Easter bunny."
I had my doubts about the efficacy of the Cash for Clunkers program, and frankly I'm having the same doubts times two about the housing credit.* First, there's the general concern that these credits don't create new demand, they move existing demand forward a couple months and rob future quarters of economic activity. Second Dean Baker points out that the redistributive effect of the housing credit is slightly more nefarious than C4C:
The size of the tax credit is equal to almost two years of TANF payments to a typical family and could pay for approximately 2.5 kid years of health care under the State Children's Health Insurance Program. This is a questionable redistributive policy to homebuyers who have higher incomes on average than renters.The new law's $6500 tax credit for existing home owners to sell and buy a new home only doubles down on this unnecessary transfer of scarce taxpayer dollars to many home buyers who are already planning to buy a house, or have bought a house and will seek the housing credit for a home purchase that has already occurred. (This is happening a lot.) The blog Calculated Risk also shows that the housing credits -- which could tally $15 billion this year -- are only moving about 350,000 homes. That's not $8,000 per buyer. It's $43,000 per buyer. Tax credits seem like simple commonsense incentives, but many, like the housing credit, are economically dubious and easily gamed. You looking for waste and fraud, Democrats? We got your waste and fraud, right here.
*Update: Oh yeah. Also the tax credit incents exurban sprawl and expands our carbon footprint.
Ahh, nothing like a 2004 Oprah Winfrey Show/Pontiac G6 giveway reference to use as a headline.
I thought I was the only one that still uses Oprah's "you get a car!" thing
I am all for consumers to be encouraged to spend and invest. However I believe they should ask a tax attorney or accountant regarding these tax credits. Example: Last year I did not have a job and make money off investments and used savings to live on. At the end of the year I had a legitimate $14,000 in deductions (including RE taxes and interest, tithing , etc.), but because I did not pay any taxes got $)0.00 back as a refund. Conversely, I was not allowed to roll over these deductions to the next tax year. Conversely, I did not qualify for the tax rebate/refund that everyone else did this year. Even though I have been a tax paying citizen for the past 40 years. Not a problem, but it goes to show our tax system needs drastic overhaul, and once again it is imperative you seek advisement pertinent to your investments. This goes under the heading : Buyer Beware.
I disagree; C4C is pretty nefarious too. C4C destroyed old cars, and thus clearly increases the price of used cars. The vouchers could only be used on new cars.
It thus increases the price of used cars while subsidizing new cars. New car purchasers tend to be wealthier than used car purchasers, so C4C also subsidizes the wealthier at the expense of the less wealthy.
Yep. I'm not a big fan of this housing tax credit (even though I'm going to probably benefit from it). But for all its faults, at least it isn't purposely destroying working capital. If the housing credit was C4C we'd be burning down all the foreclosed homes.
tax credits are great for homebuyers but hiring credits for businesses would do more to stimulate the economy...right now, businesses are rewarding themselves with lower labor costs by cutting jobs and higher productivity as those still with jobs take up the slack...they have no incentive to hire...for information on salaries being paid by companies, SalaryFor.com http://www.salaryfor.com/ offers a free and extensive database of what job seekers can expect in terms of pay. you can post your own salary or view others for free.
At some point it just becomes a given. That you grow up expecting to get a cash-in-your-hand tax credit for buying stuff. If they ever decide to end the thing, it'll probably be a rough ride. By the possible close of this thing, we just past two years, Apr. 8, 2008 to possibly as far out as July 1, 2010. We're adicted by then. Tax credit junkies. You can't cut us off cold turkey. The government will have to instigate a 12 steps program to wean us off the high.
And yes, I suspect it has prompted some people who are desperate for cash to buy a house for the $8000 cash back.
"The government made me do it" is the new "the devil made me do it" phrase.