How difficult could it be to keep hardened criminals from accessing government programs aimed to benefit homebuyers? I mean, after all, inmates are in jail and everything, some of them for life. How did they sign up for the program anyway? It was not just one or two either. It was 1,300 or more. Oh well, they were not the only ones cheating so I guess that is something. This CNBC report gives the gory details [emphasis added]:
Nearly 1,300 prison inmates wrongly received more than $9 million in tax credits for homebuyers despite being locked up when they claimed they bought a home, a government investigator reported Wednesday.
The investigator said 241 of the inmates were serving life sentences.
But, it was not just lifers in prison, thousands of others abused the home buyers tax credit program:
In all, more than 14,100 taxpayers wrongly received at least $26.7 million in tax credits that were meant to boost the nation’s slumping housing markets, said the report by J. Russell George, the Treasury Department’s inspector general for tax administration.
Some taxpayers received the credit for homes purchased before the tax break was started. In other cases, multiple taxpayers improperly used the same home to claim multiple credits. Investigators found one home that was used by 67 taxpayers to claim credits.
One would think that would be a giveaway that something was up, right? I mean the same address was used 67 times!
“This is very troubling,” George said. “Congress created and modified the homebuyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrongdoers.”
…The report blemishes an otherwise popular tax break that was sweetened once by President Barack Obama as part of his economic recovery package and again by Congress when it was extended into this spring. The National Association of Realtors says the tax credit has generated 1 million new home sales that wouldn’t have happened otherwise.
Let’s take a look at how well the program did in stimulating the economy and ‘generating’ sales that would not have otherwise happened. But first, one final ironic note from the report:
…Investigators also found 87 IRS employees who may have improperly claimed the credit, though the review was ongoing.
Before the homebuyers tax credit program there was Cash for Clunkers. All it did was accelerate sales so folks could take advantage of the deal. I suspect the homebuyers tax credit program is more of the same.
The market for new homes and existing homes is sliding back into a slump now that the government tax credit programs have ended. With mortgage rates low and going lower, one would think housing should at least be holding its own, but it’s not. That’s bad news for the economy because residential investment is an important factor in any economic recovery. Unless you think government should just keep passing out tax credits for homebuyers, eventually that market needs to find its own equilibrium. The tax credit programs stimulated some sales and that’s a fact. However, now that the program is ending what will happen? If history is a guide, home sales will fall again.
This chart from Calculated Risk gives some indication of what happened when the first tax credit program ended. Until it was extended, home sales plummeted:
Click to enlarge
Source: Calculated Risk
The red line shows new home sales and the blue line shows sales of existing homes. Both are very weak, but a huge gap has opened up. In the past, numbers for new home sales were at about 15-20% of the numbers for existing home sales. Now, that has changed as Calculated Risk continues [emphasis added:
…The two spikes in existing home sales were due primarily to the first time homebuyer tax credit (the initial credit last year, followed by the extension to April 30th / close by June 30th). There were also two smaller bumps for new home sales related to the tax credit. Since new home sales are reported when contracts are signed, the 2nd spike for new home sales was in April and then sales collapsed in May…
Based on history, I see this homebuyers tax credit being largely ineffective to actually stimulate the economy in any kind of long-lasting manner. Further, the waste we saw above means that it was, at least in part, wasteful and ineffective. But, other than that, it was good, right?