Here’s a pair of somewhat conflicting stories about the push to extend and expand the inefficient, expensive, economically stupid $8,000 first-time homebuyer tax credit.
From the real estate news source Inman News: Final push for tax credit
Real estate industry trade groups are mounting a final push for an extension of the first-time homebuyer tax credit, with Sen. Johnny Isakson planning to tie the issue to an extension of unemployment benefits.
In testimony before the Senate Banking Committee today, Isakson, R-Ga., said he plans to introduce an amendment to legislation extending unemployment benefits that would make the current $8,000 tax credit available until June 30.
Isakson’s amendment would raise the income limits for the credit to $150,000 for individuals and $300,000 for a couples. The existing tax credit can’t be claimed by individuals making more than $95,000 or couples with adjusted incomes of more than $170,000.
The estimated cost of his latest proposal would be $16.7 billion over five years, Isakson said, citing the Joint Committee on Taxation.
So apparently the latest plan is to pull a common DC trick and tack the bill onto something else that would be political suicide to vote against. This disgusting ploy usually works, and if they pull off adding it to the unemployment bill, it is almost guaranteed to be passed. Also, considering that the current credit is probably going to cost in excess of $15 billion versus an original estimate of $6.6 billion, it seems likely that if passed, this proposal would cost us another $30 billion or more that we don’t have.
Next up we have a different outlook on the credit, via Calculated Risk: Home Buyer Tax Credit DOA?
From Reuters: White House skeptical on renewing home buyers credit
And more from Reuters on the widespread fraud: IRS warned again of U.S. homebuyer credit fraud
From Diana Olick at CNBC: HUD Hints on Home Buyer Tax Credit . Olick reviews Donovan’s testimony and writes:
[T]hat sounded more like a “No” to me than a “Yes.”
And Rex Nutting at MarketWatch reviews many of the arguments against the tax credit: Kill the wasteful home-buyer tax credit
Note in the second story CR points out that the IRS “has opened 107,000 civil cases related to the credit.” If we go by the NAR estimate that around 1.9 million buyers “will take advantage of the $8,000 tax credit this year,” the 107,000 civil cases represent a potential fraud rate of over 5%. Who could have guessed that when the government starts handing out free money, people would race to game the system?
I apologize for the overload of posts recently regarding the $8,000 tax credit, but I feel strongly this is an important issue related to real estate. The tax credit is wasting money, harming potential buyers by hampering the natural correction of the market, and helping to push the rental vacancy rate higher, which causes further pain for local and regional banks. The government needs to stop trying to prop up a broken market and let home prices fully correct.
Here is the contact info for our senators. I encourage you to call or fax them and encourage them to vote against any form of extension, renewal, or expansion of this wasteful and counter-productive spending spree.
[This story was corrected on 10/20 at 11:00 AM to indicate that the 107,000 civil cases opened by the IRS represent potential fraud, not necessarily actual fraud.]