You Get a Tax Credit! You Get a Tax Credit!

Congress has extended homebuyer tax credits to incent more first-time home buyers to take a chance in the distressed market. It's important that the government continue to use its coffers to stimulate the economy with unemployment at 10 percent, but the housing credit's record is rife with fraud. (A good roundup of the boondoggle is here.)

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.