August 08, 2009

Federal Home-Buyer Tax Credit Prompts Cheating

In today's Washington Post, Kenneth Harney reports evidence that some people are falsely claiming the new federal income tax credit for first-time homeowners.

Two quick thoughts.

First, the question of whether incentives for first home purchases are a good idea. Gonna say no: The benefits aren't necessarily going to buyers-- in some markets, sellers will just increase their asking prices to factor in the value of the credit. Moreover, plenty of better-off people who are getting this credit simply don't need it, and the lower-income folks who DO need a tax credit to be able to afford purchasing a home-- well, maybe they're not quite ready to own. Brings to mind Michael Bloomberg's quote RE the silliness of corporate tax incentives:
Any company that makes a decision as to where they are going to be based on the tax rate is a company that won’t be around very long. If you’re down to that incremental margin you don't have a business.
Same deal with first-time homeowners: if it really takes a tax credit to make this doable for them, what does that say about their ability to pay monthly mortgages in the long run?

Second point here, more on Harney's topic: why should the IRS be burdened with administering this pig? Kudos to them for doing it, but if it's gonna be someone's job in the US government to check that someone claiming to be a first-time homebuyer really is one, why not someone at HUD rather than IRS? Let the IRS guys collect the revenue-- and let Housing guys decide who needs help with their housing expenses.


At 10:36 PM, Anonymous John said...

Agreed. Isn't it partly people who could not afford a home buying a home anyway that caused the housing crisis?

And if the housing prices are jacked up because of the credit, doesn't this contribute to another possible meltdown from artificially inflated prices?

At 12:08 AM, Blogger wilbur said...

John, I'd say you're right on both counts.
It's almost as if we'd decided that there are no lessons to learn from the bursting of our housing bubble.
Would like to think that at some point, the sponsor of the enabling legislation for this tax credit was asked each of the questions you present here-- and that the sponsor had some reasonable response. But it's hard to see what would be.
What's next-- government incentives to buy new cars so we can renew our commitment to fossil fuels? Oh, wait...


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