Homebuyer Tax Credit: The Moneypit Is Alive and Well

The government continues to throw money into that giant hole they keep in the Capitol’s basement. This time the money is going towards an extension of the first time homebuyers tax credit. CR is reporting that it’s essentially a done deal. I’d like to think that lobbyists aren’t the ones who pushed this through, but that’s just impossible to believe since anyone in their right mind can understand the incredible waste behind such a bill.

Aside from the fact that this is an expensive attempt to fix market prices (how Capitalist of them!) it’s easy to see that the program is not having a massive impact on new buyers (see here for more details). The beneficiaries of the program are homebuyers who would have purchased a house regardless of the program. And all of this is to provide the buyers with a 4.44% discount. I just can’t think of one single reason why anyone thinks this is a good idea.

This wasteful spending is getting to the point where I almost hope the economy falls off a cliff. Why, you ask? Because that seems to be the only way we can get the attention of these people in Washington who think they’re using Monopoly money up on Capitol Hill (our Monopoly money!). I really hope I am wrong that all of this wasteful spending will come back to bite us in the end, but common sense tells me I am not wrong….The beat goes on. Goldman Sachs wins! The housing market life support system just got turned back on and boy is it wasting a lot of time and energy….

Comments

[Joseph L. S...:]

The problem is not lack of potential buyers -- as long as other taxpayers (oops, "the government") continue to pay much or most of the down payment -- meaning these buyers will STILL have little or no skin in the game.

You have to have a monetary and emotional interest in your home or it's just too easy to walk away when it gets "too hard" to make the payments or you need to choose between making home payments or getting that shiny red new truck.

When will our government learn? Something we work for has value. Something we are given may or may not...

Oct 28 10:47 AM

[WD216:]

Agreed. Unfortunately the only way to wake up Obama and Congress is to have the economy fall off a cliff. Although I have my doubts either of them can see clearly even if that happened. The way to save the country is to vote the socialists out and install a Reagan type president and a Congress that is aware of what America was and how it was built. How sad is it that we have to hope for failure to get the change that is needed to bring capitalism back to this country. Our Founding Fathers are spinning in their graves.

Oct 28 10:52 AM

[j-dub:]

"This wasteful spending is getting to the point where I almost hope the economy falls off a cliff."

My sentiments EXACTLY. I have felt this way for the past few months because of the boneheaded, short term based decisions our government is married to.
THIS IS NOT MY AMERICA

Oct 28 11:28 AM

[Living4Divi...:]

Money pit?

Let's see
$8000 for a $160,000 house is 5% of the purchase price
$4500 for a $18,000 car is 25% of the purchase price.

According to the government, cars are more important than houses. When the banks foreclose on the houses, the people can sleep in their shiny brand new cars.

Given the size of the automarket and size of the housing market, the have thrown FAR more money at Detroit than at housing. As well, they have thrown FAR more money at the banks.

The $8000 tax credit is a piddling drop in the bucket.

Oct 28 12:20 PM

[GotLife:]

Interesting comments. Fear and disgust are strong motivations for most of us, keeping me from a "cash for clunker" buy as well. But the economy is stalled by all this pandering and capricious spending. People are training Congress to be their ATM and, after salivating, Congress willing answers the bell with yet another economic miracle.

Oct 28 12:21 PM

[Living4Divi...:]

Here are the REAL Money Pits:
1. The banks (to the tune of 700B+ as well as 7T in loan guarantees
2. The credit card companies (buying credit card receivables)
3. Detroit (The GM bailout #1) 25B + more
4. Detroit again -Cash-For-Clunkers,
5. Another possible possible bailout for Detroit

Where are the real money pits?

The only thing they have done for homeowners is a $8000 credit.
And, this time the credit is lower (but the program covers more buyers)

Oct 28 12:23 PM

[Socialism c...:]

No capital at the capitol? ;)

I *totally* agree that we need the wheels to come completely off the wagon in order for the treasonous, unconstitutional Big Government "tax and spend" era to end in this country. How we ever got to the point of anyone being taxed more than 10% of their income is beyond me. Traditionally, the concept of tithing is to give 1/10. That concept is used by many churches, and the biblical words of "render to God what is God's, but rend to Caesar what is Caesar's" cause me to ask why Caesar should be able to ask for a larger portion of my fruits than God??? I would suggest it seems reasonable to enforce limited government by limiting taxation to 10%. To go one step further towards securing Liberty and property rights, it would be best if taxation was consumptive, so that the earner/owner of the funds can decide if he can afford to pay the tax, and when to do so.

fairtax.org

Oct 28 12:34 PM

[OptionManiac:]

Consumption tax? That would be great for my wife and I. Kids gone, have already bought the big items. But the numerous couples with three kids in my neighborhood? Let them carry the tax burden on their starter wages while my salary is peaking and I have few expenses. Like anything, the consumption tax looks good on paper, but in practice? Unintended consequences. (such as a lower birth-rate).

Oct 28 02:06 PM

[Highwired:]

Yeah, I agree, helping real citizens and the overall economy is such a giant waste. Have we run out of countries to invade or banks to bail out?

Oct 28 04:45 PM

[CoverIsBetter:]

I agree with 'LivingForDividends';
A small tax credit, which you get as a deduction for buying a home, is a pittance compared to all the other bailouts.

Correct me if I am wrong, but writing $8000 off of one's income is not going to be a tax refund of $8000.

Oct 28 04:59 PM

[Highwired:]

And as far as the auto companies - The last time an auto company was bailed out it was Chrysler. They were given a bridge loan to stay afloat, and when they got on their feet they paid the government back 100% with interest, so we actually made money. Can the same be said about the banks?

And also, when you get down on the auto companies be sure to reference the millions of people that depend on it outside of manufacturing as well.. parts suppliers, retailers, etc.. last I checked they weren't just in Detroit.

Oct 28 05:26 PM

[JPDX:]

Yha the 8 Gs essentially pays for closing and moving costs, which does not really add any equity to your home. It lures in buyers though and that is what it is for. It does the trick, but only for so long. It gives us homeowners a chance to get the F out and go rent! It would be great if the govt. could start creating some damn jobs instead. Jobs will fix just about every problem we have right now.

Oct 28 05:29 PM

[Living4Divi...:]

Clearly, the shiny new truck is more important to the Fed Govt

On Oct 28 10:47 AM Joseph L. Shaefer wrote:

> it's just too easy to walk away when it gets "too hard" to make the
> payments or you need to choose between making home payments or getting
> that shiny red new truck.
>

Oct 28 06:06 PM

[Moon Kil Woong:]

After this prop up scheme ends we will once again worry about demand drying up as the aftermath of this stimulus. When exactly is it all suppose to end? Commenters are right that it just helps people buy with less or no skin in the game thus exacerbating potential future defaults and forclosures while creating artificial demand thus encouraging even more overproduction of homes.

Gee let's copy Japan stimulus while we are at it and try to make a city in the ocean which no one lives in or wants to live in. If we stop midway think about what it will do to the economy. The road to hell is paved with good intentions.

Oct 28 11:22 PM

[Mr. Ed, Jr.:]

Well......

Sure, it is just $8,000. A pittance. A mere bag of shells.

And, as some have pointed out, it really does pale in comparison to some of the other really, really wasteful schemes that have cost hundreds of billions. So, if I am understanding the argument as it is presented....it is that there is no problem in wasting taxpayer money as long as there are other, more wasteful programs that can be used for comparison.

The purpose of the credit (By the way, It is a credit-- not just a deduction, so it really does cost the U.S. Treasury the full amount.) is to help keep real estate prices propped up by increasing the number of homebuyers, thus positively impacting demand by reducing supply. But foreclosures are still far outpacing the number of potential buyers that could possibly be brought into the market with this program, so how does that work with the law of supply and demand ?

Who does this help ?

Well, it might help homeowners who are selling their homes. Citizens who stay in their homes and pay their mortgages are not getting any proveable benefit.

Renters are not helped. But even if the unproven theories are correct and the tax credit actually does suspend the law of supply and demand, keeping home prices from more decline, that means the renter is having his tax dollars used to keep his rent propped up, too. Anything wrong with that ?

It certainly is going to help special interests. Today, the most special of all special interests are the banks. Yes, this will help them. Maybe. And it will help the NAR.

Home foreclosures continue at a record pace. Personal bankruptcies are expected to top 1.5 million for this year. Unemployment is expected to continue to rise and remain high for a few years. If this is the state of the economy, it is likely that home prices will fall more. Record numbers of foreclosures hitting the market early next year will not help home prices. Nor will wasteful spending by the biggest debtor nation in the histoty of the world.

Oct 29 02:33 AM

[User 505104:]

So I happen to be one of the "lucky ones" that have purchased my first home and received my 8G's. As was mentioned previously, this tax credit wasn't going to change the purchase of this home but certainly was icing on the cake if you will. The reality of it is that I am a young professional and pay a fair amount of taxes already. With the uncontrolled spending and the resulting national debt, it is inevitable that my later years as well as my kids' will be heavily taxed. I will pay for that 8 grand dearly as will everyone else. In this most depressing time of uncontrollable government spending and policy, I'll take what I can get cause we're all pretty much screwed anyway. Too many American's financial, economic, and political ignorance is exactly what will keep us a the whim of people that make decisions for us that they do not have to live with. As far as the cash for clunkers program goes, this was only to promote a personal agenda. People that qualified for loans on a new 18-24k car aren't the ones that REALLY needed help. Not to mention the fact that scrap yards were not allowed to part out those vehicles as they were essentially destroyed. This is not a sustainable practice when you take into consideration the energy that went into making the vehicle in the first place and when you take away countless number of opportunities for small business crap yards to boost their businesses.

My plan... get rid of all possible debt and be prepared to leave the country if things get much worse. I used to think that the US was pretty messed up but it was still better than anywhere else I could think of. This is not my sentiment as of late.

PS: watch the movie Food Inc. but be prepared to change the way you eat.... for the better.

Oct 29 12:11 PM