First Time Home Buyer Tax Credit Extension?
Wednesday, the Senate passed, without opposition, HR3548 which would extend the $8,000 tax credit for first time home buyers until April 30, 2010. Yesterday, the House followed the Senate’s lead and signed off on the extension as well. The President signed the bill into law earlier today.
The tax credit has been subject to much debate in the real estate industry as there are very real concerns that the credit may be exacerbating a situation similar to the one that led to the housing bust in the first place. It is certainly a heaven-sent for young Americans attempting to buy their first homes, but it has been interpreted as some as an instrument that is only serving to force buyers into a market who would not typically be looking to buy. Obviously, this is also viewed very differently depending on which side of the debate you may fall. Some see it as a positive program because of its clear stimulating effects, but many others question the prudence of pulling new income earners into the market prematurely. In an unstable economy plagued with unemployment and layoffs, new home owners who are frequently also new to the professional world, may be among the most risky of potential home buyers and may be the next mass group of foreclosure victims if the economy doesn’t turn around in short order.
From a purely ideological perspective, I must admit that I am not particularly fond of the tax credit. I am simply reluctant to believe that the US government needs to be in the business of granting tax payer money to one portion of the population over another regardless of the stimulative effect. Some will argue that this is not a give away, it is a credit. I would ask them to check their W-2′s and tax returns from last year and to then respond how $8,000 in the (paid vs. owed column) would impact their bottom line. For most, this means a hefty tax rebate check when April rolls around.
From an economic standpoint, I cannot allow myself to buy into this type of incentive-based stimulative policy. In my mind, this is no different than “Cash for Clunkers.” It is an effort by the government to single out one sector of the economy and through expenditures of tax payers dollars, it aims to generate sales. As was the case with the Clunker program, it works. Of course it does. Who doesn’t like “free” money, but what are the consequences?
The problem with this sort of logic is two-fold. First, I was under the impression that we lived in a capitalist system. Maybe I am wrong, but I can’t remember where in the definition of capitalism it describes the role of the federal government in favoring one industry over another. If we can prop up the automotive and housing industry, why not the rest of them and dive into socialism completely. Second, I am of the belief that these programs only lead to a prolonged economic lull rather than generating some formulation or magic potion for curing an ailing sector of the economy. If thousands of Americans rush out to purchase new homes and new cars because they are being offered a tax incentive to do so, what happens when the tax credit is gone? They stop buying.
The temporary bump in sales is great for that quarters profits (and I certainly understand the argument that buyer confidence is driven by such numbers so don’t waste your time reminding me of that below) but the longterm result is an eventual lag, because everyone who would have purchased a new vehicle or new home in the next six months already did so under the incentive program. For those who miss out on the opportunity, how long will they wait to make a purchase? That can only be measured in terms of how long it takes them to remember that only a month ago they could have purchased the same product at a substantially lower “total cost” because of the program.
This will lead many to believe that tax credits such as these should be permanent or at least extended – as the House and the Senate have done this week. I however, cannot see the logic in this method. If the housing credit is extended until April, I have no doubt that first time home buyers will continue to be a driving force in the market, but what happens May 1st? Are we just hoping on hope that our economy recovers fully by that time?
The argument is futile at this point as the bill has now been signed by the President, but I would have advocated for not extending the tax credit (obviously), but not killing it altogether either. If it served such a valuable role in keeping the housing market afloat, why not let it expire now, and bring it back after the first of the year, extended to all home buyers, and let it be the force that truly brings us out of this recession – if you are of the mindset that the housing market has the power to do such things.
The short of it is this. I think it is a travesty for any government program to spend tax payer dollars for efforts such as this. They may produce very real results, but in a capitalistic system, what logic leads one to believe that this is the way to go? Taking that a step further, what logic allows a nation that purports to protect the equal rights of all Americans, leads to the conclusion that providing a benefit to one sector of the economy (housing) or one portion of the population (first time home buyers) is in any way equitable? I cannot find the answer, so I am truly at a loss and will conclude that capitalism and equity are simply words that exist only in theory amidst a recession with liberals at the helm.
I will leave you with the words of Ayn Rand...
“Government “help” to business is just as disastrous as government persecution… the only way a government can be of service to national prosperity is by keeping its hands off.”
In all, 98 Senators voted in favor of H.R. 3548, with zero votes against (two Senators did not vote). H.R. 3548 is a bill is primarily purposed with extending unemployment benefits.
The bill is currently amended to include the extension of an $8,000 tax credit for those buying their first homes as well as an $6,500 tax credit for some borrowers buying a home for a second time.
I am glad to hear someone speaking out on this. My son actually benefited from this credit this year and when his income taxes were paid he received a $9600 return. I didn’t even believe it when he told me. Then I was angry that our tax payer dollars were being spent like this. I was happy for my son, but fearful about how many other sons got the same rebate.
Senators and Congressman just dont know what they have in their hands. They serve as the power brokers for our nations economy and they believe because the power is placed in their hands, they are also simultaneously granted the wisdom to know what to do with it. You are correct. This is an inequitable distribution of personal wealth. This should never have been allowed to happen. I am ashamed of the Republicans who rubberstamped this.
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