“Terrible Tax Policy”

The Tax Foundation has blasted Johnny Isakson’s tax credit for new home buyers:

Republican Senator Johnny Isakson, a former real estate agent, has come forth in support of yet another tax handout for housing. The bill is co-sponsored by many other Republicans in the Senate, including Senators Gregg, Craig, and Senate Minority Leader Mitch McConnell. This time they want to give a $15,000 per year tax credit spread out over three years to anyone who purchases a new home, a foreclosed home, or a home that is pending foreclosing.

These same Republicans who claim to want to rein in government spending as part of being “fiscally conservative” are themselves proposing a massive new hidden spending program, though they disguise it as a tax credit.

If there is anything the tax code needs, it is fewer handouts for the housing industry, not more. Members of Congress need to start listening to the consensus of economists on both the left and right who believe that housing receives too many favors in the tax code. And they need to stop listening to the paid lobbyists of the National Association of Realtors and the National Association of Home Builders.

25 comments

  1. candlerpark says:

    Even though my entire financial life is tied to the real estate market I think this proposal is total crap, just like the bailout of Bear is total crap.

    For all the jawboning republcans do about the free market & capitalisam, they are no better then the democrats when it comes to spreading money around & bailing people out – One party bails out the top & one bails out teh bottom, but both are wastes of $$ and both increase the economic pain to the country by interfering with the markets.

    If banks made bad loans they have to take the hit- They made the money on the way up they can take the loss on the way down. Same thing with the homebuilders.

    It is insane to me that in the 21st century ALL politicians seem to be for a system that says ‘heads you win, tails the government wil bail you out & the taxpayer loses’. . . Actually it is not even the taxpayer who loses . . . it is a fallacy thet the ‘taxpayer’ pays for any of this crap. The government just prints more money rather than asking the ‘taxpayer’ for any sacrifices. The real losers are all of us whose wealth is denominated in dollars. The ‘taxpayer’ will not be asked to pay for any of this, the ‘dollarholder’ will, though.

    The most shocking thing is that there is no answer, both parties are equally complucit, using brand new printed dollars to bail out their buddies because they are able.

  2. Goldwater Conservative says:

    How can these means of congressional spending suprise anybody? This is what the GOP has been doing since the “tax and spend” label hit the Democrats. The GOP has been “untaxing to spend.”

  3. ramblinwreck says:

    candlerpark, excellent point! The fact that there is so little difference between the two parties any more is why there are so many angry conservative voters this year. Government isn’t, and shouldn’t be the solution, it’s the problem. Of course you can’t get elected to congress promising to not bail people out of the messes they’ve created by their own bad decisions. This proposed bailout will not rescue the housing industry it will just reinforce bad/irresponsible behavior by the lenders. This will only temporarily slow down the rate that the economy is circling the bowl on the way down the drain.

  4. Icarus says:

    I put most of my thoughts on this here:

    http://www.peachpundit.com/2008/03/14/keynesian-johnny/

    I belive that the $14 Billion that this incentive would “cost” the taxpayers is far less than the lost tax revenue, losses on insured FHA/VA/FannieMae mortgages, etc that the country is likely to face if the over-correction in the housing market continues unabated.

    It’s also less than 10% of the size of the recent “stimulus” package that will give everyone $300 checks but accomplish absolutely nothing on a macro-economic level.

  5. jsm says:

    “One party bails out the top & one bails out teh bottom, but both are wastes of $$ and both increase the economic pain to the country by interfering with the markets.”

    Well said. The behavior of our government-under either party, currently-is swiftly moving us toward a welfare state. The reason for this, I believe, is that the average voter doesn’t understand the consequences of the handouts they are promised. And they require these promises of government freebies from their candidates.

    Additionally, our leaders appear to think the failure of a large institution, such as Bear Stearns, would instantaneously sink this economy. This only continues to demonstrate that they don’t truly believe in the mechanisms and abilities of the free market.

    This world of padded playgrounds also cushions the fall for every adult who makes a bad decision. The lack of negative consequences only encourages more bad decisions at the taxpayer’s expense. We’re killing the spirit that made America great while we live on the abundance previous generations struggled to build for us.

  6. John Konop says:

    The problem is the government put tax payers on the hook for the loans via Freddie Mac, Fannie Mae……… We also guarantee depositors and re-insurance companies.

    The issue is simple if someone lends money and both parties agree with full disclosure we should let the market dictate terms and price. Yet if lawmakers use tax payers to guarantee part of the deal we should stop the practice or have tight regulation.

    I am all for deregulation but not at tax payers’ expense.

    The problem is a catch 22 if we do nothing the tax payers will end up with the bill via the guarantee. And by doing something it will cost us all money.

    The real issue is the something for nothing attitude that permeates via Washington and voters.

    Why not ask the lawmakers on the banking commission why they would put tax payer money at risk via guaranteeing loans and not look at the ability to pay?

    No matter what party you are in, most of you will give your lawmaker a pass and than complain about the other side while paying the bill.

  7. cheapseats says:

    Maybe it’s the liberal streak in me but I have a hard time getting behind the bailout of millionaires and billionaires – less so with bailing out the paycheck-to-paycheck crowd.

    This smells like the S&L and the Chrysler bailout all over again. I guess we learned nothing from those. How many of those S&L guys are currently in federal prison? How many are currently sipping Johnny Blue on their yachts in the Bahamas?

    The only way I get behind a bailout of Bear and/or the mortgage lenders is if we start by seizing all of the personal assests of those involved – not just at the top, either. All the way down the chain!

  8. John Konop says:

    Cheapseats, do you understand you are bailing yourself out (if you pay taxes)?

    Cheapseats, do you understand you are bailing yourself out (if you pay taxes)?

    Do you get most the home loans are guaranteed by tax payers?

  9. Icarus says:

    Cheapseats,

    This bill isn’t bailing out anyone. Bear Sterns shareholders are getting less than $.10 on the dollar for what their shares were worth. This bill does nothing for them. A lot of hedge funds have already been liquidated. Their shareholders, nothing.

    This bill won’t give anyone a deed to a house that has been in forclosed on. Their credit won’t allow them to buy a house again for years.

    This bill is designed to help stimulate demand in a market that has been rocked by uncertainty. It’s not going to cause banks to crank up sub-prime lending again, that market is gone. It’s not going to get small banks to turn their spickets back on with spec construction loans to under capitalized builders. They tend to have longer memories than the wall streeters.

    This is merely a relatively cost effective way to stop the bleeding in the housing market that has caused real price depreciation in most american’s largest assets. The negative psycological “wealth effect” is a large reason the country is on the brink of recession. If a recession can be averted, $14 Billion is chump change.

    And as for the unrelated bailout of Chrysler, it didn’t cost the taxpayers a dime, and saved well over 100,000 manufacturing realted jobs. And gave us the K-car and the minivan, so it’s probably a wash.

  10. jsm says:

    “less so with bailing out the paycheck-to-paycheck crowd.”

    Bailing out a working person who was wiped out by catastrophic medical expenses or a similar uncontrollable situation is understandable. Bailing out people who signed contracts they couldn’t afford, whether ignorantly or on purpose, is irresponsible.

    I was in the paycheck to paycheck crowd not long ago, and I disciplined myself against buying things I really wanted so that I could improve my financial situation. Having worked hard for my money and having sacrificed some pleasures to gain just a smidgen of financial stability, I deplore the idea of propping up people who would not discipline themselves. I’m glad credit is no longer so easy to get. The crunch this Nation has experienced ought to be felt by all who have caused it.

  11. Doug Deal says:

    Icarus,

    This bill isn’t bailing out anyone. Bear Sterns shareholders are getting less than $.10 on the dollar for what their shares were worth.

    That’s a load of bull. If the shares were indeed worth $1.00, they could freely sell them for $1.00. Accepting $0.10 on the $1 as means they are probably worth $0.10.

    Note to investors: Equities often go up but sometimes go down. If you can’t stomach the potential for losses, invest in Federal Bonds, or demand that your BoD stop allowing your company officers to participate in bone headed business practices, or don’t invest in those companies.

    No one was fooled by this bursting of yet another bubble. When median home prices have increased 55% over 7 years, while median income has gone up 6%, how is this reasonable?

    This means that housing prices have increased 10 times that of income. This is nothing but recklessness, something that Johnny I.’s industry was instrumental in helping cause. But who cares as long as brokers get their 6-7% on the sale?

  12. IndyInjun says:

    Rick Santelli on CNBC said it best – “if the fed keeps intervening then we should “just put a hammer and sickle on the flag”

    I say let the free markets run their course, otherwise we will see it become a $10 trillion bailout as debtors ALL walk away and the ABS holders take the Fed’s gifts and reinvest in euro bonds.

    Some reports have the receipients of the Fed largesse doing just that – practicing a new carry trade and investing the 2.5% funds at 4 or 5% elsewhere.

    Bailing out what Goldman-Sachs says is a more than $1.2 trillion problem will also motivate savers to FLEE the USA in panic as they see the end game is to steal their money to bail out ‘the Street.’

    Frankly, the only way we can put an end to the cycle of the S&L -> Enron -> Worlcom -> Bear-Stearns frauds is to start hanging Investment Bankers from every lamppost in lower Manhattan.

    What we are looking at is the last remnant of responsible people turning hostile against folks who have declared financial war on them.

    This is not over and the end won’t be pretty.

    McConnell and Isakson have shown in supporting this that even Cynthia McKinney has a home in the GOP.

  13. jsm says:

    “Do you “deplore” the lawmakers that had you guarantee part of the loan? If not why?”

    No. I deplore their actions. The National Housing Act of 1934, which created FHA, was part of FDR’s New Deal, which has fostered the entitlement culture that threatens to bankrupt us today.

  14. IndyInjun says:

    JK,

    Prosecute without mercy, using the same unlimited ‘tools’ and zeal used on the folks at Gitmo.

    The figures I come up with are these. There are $16 trillion in assets in FDIC banks. There are $6 trillion in deposits, $4 trillion insured. Many are frightened because the FDIC has only $35 billion in funds, with those likely to have been ‘borrowed’ and spent elsewhere, like every other government kitty.

    If the system melts down, all asset sales proceeds must go to FDIC insured depositors first. Counterparties are SOL. Bank shareholders are SOL. Bank creditors are SOL. If assets are not enough to offset FDIC depositors, they are SOL to that extent.

    The Fed should lend enough to facilitate the process of closing the banks and making depositors whole, NOT lending $30 billion at 2.5% to ANY investment banks with which to conduct carry trade.

    This portends to get very, very nasty for the financiers. Think French Revolution nasty.

    The way I have laid it out, the responsible folks might be hurt, but all will understood that the irresponsible and the fraudsters have born the brunt of the carnage.

    To do otherwise will rend the last tattered fabric of society with catastrophic consequences.

    At some point moral conduct, principles, and discipline must trump the ‘necessity’ for bailouts. IF not, I suggest that the Mad Max movies will become entirely too real.

  15. Donkey Kong says:

    “Frankly, the only way we can put an end to the cycle of the S&L -> Enron -> Worlcom -> Bear-Stearns frauds is to start hanging Investment Bankers from every lamppost in lower Manhattan.”

    *Cough.* Indy, uh, throw me a bone here.

    Bankers are not the principal ones to blame, Indy. The original lenders were the ones who lowered lending standards, not the IBankers. The IBankers just bought these crappy loans and sold them to investors (or, like Citi and Merril, held onto them).

    Otherwise, in general I agree with your points about moral hazard. I haven’t asked, so I don’t know for certain, but if the IBanks did *not* use the discount window as some kind of carry trade, I’d be utterly shocked.

  16. Donkey Kong says:

    Indy, on the use of the discount window for arb profits, a friend wrote the following:

    “this kind of trade [borrowing from the discount window] is generally done as a repo. The Fed gets the income from the original collateral you put up. So in addition to the (high) discount rate, you’re also paying the forgone interest from your collat, and you’re still paying repo-rate interest to whoever you borrowed from to get the collat in the first place.”

    So, basically, there’s no arb opportunity.

  17. Thadius says:

    DK,
    The quote you gave gives the traditional use of fed borrowings.
    Corporations (who are forbidden from earning interest on transaction account deposits) often earn the equivilent by having a repo account through their bank. Every night, the bank takes the balance in their account and purchases repo stocks and sells them back in the morning. The bank takes a margin and the company gets to earn “non-interest” in its money.
    The issue is that investment banks were never given access to the discount window until about a week ago.
    Your quote is correct historically, but I believe that the move to open the window to IBs will result in some abuse of the system.

  18. IndyInjun says:

    DK – The investment banks are the new supplicants to the Fed and were the sources of securitization. Granted there are many responsible parties for the calamity, but most of the fee generation was at the IB level.

    Claiming that the IB has lost revenue from worthless, or severely diminished collateral that offsets the carry trade revenue is somewhat humorous.

    CobbGOPer – I ain’t biting. Exactly how would the Fair???tax have prevented greed from overwhelming ethics, laws, regulations, and plain common sense?

    Make no mistake. The last vestiges of a functioning society are being torched by this fraud, with those who acted responsibly being punished to bail out con artists and opportunists of every stripe. If the Fed, Treasury, SEC, and the exchanges keep it up, no one will keep $US denominated savings or invest in $US assets.

    This is a catastrophe that goes WAYYYYYYYYYY beyond the monetary losses. In the WSJ this morning appeared an article saying that an incredible FIFTY PERCENT of foreclosed houses have been trashed, so now lenders are paying defaulters $1000’s to leave the house intact.

  19. Thadius says:

    This is a blog, so I’m gonna give my opinion:
    Besidedes Abortion, the Fed’s manipulation of the dollar is the greatest crime in America today.
    the fact that the “Stimulus Bill” was passed through Congress and signed by the President of the United States shows that leadership in this country is either ignorant or incredibly malicious.
    The greatest threat to our financial well-being today is NOT the sub-prime isue. It is NOT illegal aliens taking jobs. The single greatest threat to our econimic well being is the weakness of the dollar.
    By lowering the Fed OMC rate, leadership chose to weaken the dollar further in order to bail out the banks. This benefits the banks at the expense of everyone else (and I’m a banker).
    It’s hilarious that the gov’t gives $600 to a family which is paying $300 more a month for gasoline (compared to ’02) and calls it a “fix”.
    It is pathetic that anyone sees this and says “good job, we appreciate you doing what you can. ” They are printing money to give you a pittance, all the while exaserbating the issue which is killing us in the first place.
    A comedy of ignorance.

  20. IndyInjun says:

    Thadius – If an intruder came into my house and attempted to steal my property, I would shoot them quite dead with no remorse.

    The Fed is stealing much, much more than any home intruder and the only thing that I can do is to buy foreign currencies, commodities, or metals.

    We have taken 80% of the world’s savings, stolen a huge chunk of it, slashed returns, and are devaluing what is left. We export only finance, insurance, and real estate services and those have proven to be as lethal much like toys from China. We have more than $10 trillion in official debt and these bailouts are creating even more. Are we to suppose that foreigners will continue to play fools and punish their own people with inflation, just to bail us out? Hahahahaha…

    Bernanke is supposed to be an expert on how to avoid a Great Depression, but like Bush in Vietnam, he was MIA during the Weimar lesson.

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