A reader writes:
Holtz-Eakin is right about the first time homebuyers' tax credit, but he's dead wrong to link the failed initiative with the successful Cash-for-Clunkers program. Holtz-Eakin accuses C4C of yielding few benefits, because consumers could obtain the rebate by "simply raising your mileage by only four miles-per-gallon." That was an interesting theoretical objection *before* the program was initiated, but now that it's over, we can actually measure its relevance. The preliminary data show an increase from 15.8 to 25.4 mpg, a gain of some 61%. Oops. He also derides the benefits of Cash-for-Clunkers as illusory, when creating an illusion of growth and thus stimulating consumer confidence was its principal objective.
It's precisely because C4C was a success that it provides a useful gauge of the shortcomings of the first time homebuyers' credit. It doesn't promote the construction or purchase of houses that better meet some set of criteria - more energy-efficient, denser - which might result in longterm social benefits or savings. Unlike car sales - accompanied by a massive advertising blitz from manufacturers and dealers, local news broadcasts from the parking lots, and easily-tracked statistics - the tax credit offers little in the way of theater, limiting its effects on broader consumer sentiment. It's comparatively expensive - it's already estimated to cost five times as much as C4C, even if it's allowed to expire. And, since more than three-quarters of recipients were going to purchase homes anyway, it hasn't succeeded even in advancing the pace of sales, let alone significantly expanding their number. Expensive, inefficient, and ineffective - so why is Congress likely to renew it anyway?
Start with the real estate and construction lobbies. Throw in the fact that it's a government program that helps working families (appealing to Democrats) and does so by lowering their taxes (appealing to Republicans). Holtz-Eakin, who has never met a stimulus program he likes, is too busy grinding his ideological axes to make note of this. The truth is that policy wonks of all stripes, from Cato to CAP, are opposed to renewal. But instead of pointing to the consensus among experts and economists, Holtz-Eakin would rather use the absurdity of the homebuyers' program to re-fight the battle over C4C. I have trouble thinking of a less effective rhetorical strategy than telling Congress: "Remember that incredibly popular program that re-opened shuttered assembly lines and provided terrific bang for the buck? This initiative is just as bad!" Sometimes, it's better to admit error, and move on.
With low consumer spending acting as a drag on the economy, a cash infusion is likely to be more useful now than it would be in a year or two. These programmes help to smooth out consumption over time. There are plenty of reasons to still dislike themdoes the car programme really help the environment? should the government be picking industry winners?but this isn't one of them.