More tax money to be wasted:
When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it.So basically, money that could be used to help the poor or improve our schools would be used to prop up a bubble instead.
As many as 40 percent of all home buyers this year will qualify for the credit. It is on track to cost the government $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill in February.
In the view of the real estate industry and some economists, all that money is well spent. They contend the credit is doing what it was meant to do, encouraging a recovery in the housing market that is gathering steam. Analysts say the credit is directly responsible for several hundred thousand home sales.
Skeptics argue that most of the money is going to people who would have bought a home anyway. And they contend that unless it is allowed to expire on schedule in late November, the tax credit is likely to become one more expensive government program that refuses to die.
The real estate industry, including the powerful 1.1 million-member National Association of Realtors, wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion. ...
On the other side of the issue is the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. It labeled the original credit as one of the worst provisions of the stimulus package, on the grounds that the money is a bonus for people who would buy a house anyway. The center has an even dimmer view of extending the credit to all buyers.
“Is this the best way to spend money we don’t have?” asked senior fellow Roberton Williams.
Dean Baker of the Center for Economic and Policy Research called the credit “a questionable redistributive policy” from renters to home buyers, but said that he used it himself when he bought a house.
He wrote on his blog: “Thank you very much, suckers!”
If Congress is intent on a housing tax credit, it would be more efficient and less expensive to have a homebuilding tax credit that only went to purchases of newly-constructed homes. Building new homes creates many construction jobs and increases the supply of housing. A greater housing supply then pushes down the cost of housing, both for new homeowners and renters.
By contrast, the way the proposed credit mostly would work is that there is a tax credit any time an existing home changes hands. If I sell an existing home to you, you get a tax credit. If you then sell an identical home to me, I get a tax credit. No construction jobs are created and the supply of housing does not increase when an existing home changes hands.
These tax credits don't just come out of thin air. Instead, other taxpayers are essentially paying part of the cost of your home. (Or you are paying part of the cost of someone else's home.) But if a tax credit is going to be extended anyway, a homebuilding tax credit gives the U.S. economy far more bang for the buck than a home buying tax credit.
Hat tip: Nonpartisan