Today we’ve learned on these very internet pages of the “major victory” that is close at hand for liberal Senator Johnny Isakson (Allegedly R-GA). In said plan, 16,700,000,000 dollars will be spent to further delay a return to market economies of scale and provide more roadblocks to a much needed market reformation. Liberal Johnny Isakson will, if successful, simply have provided a band aid to a hemorrhaging market (where he made his money) that needs to be allowed to sort itself out.
What’s more, it’s clear that the program, thus far, is rife with fraud.
The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.
The National Association of Realtors claims that the Isakson tax credit created 350,000 new sales. Based on the cost to date of the program, that equates to roughly spending 43,000 dollars for each home purchase.
Is that really conservative spending? Is that a demonstration of good stewardship of the tax payers hard earned dollars?
Remember, a goodly number of these home purchases would have happened irrespective of the arrival of the tax credit. The housing markets have never dropped to “zero sales” and some movement of property is always underway.
This tax credit also has the effect of artificially inflating housing prices.
What happens when you artificially prop up housing prices? Imagine the credit were expanded to all home buyers and made permanent. This would simply boost housing prices at the low end of the market by close to $8,000, since all buyers would be willing to pay $8,000 more. (Prices would rise by a little less than $8,000 because at higher prices, more people would be willing to sell.) Whom does this benefit? Not first-time home buyers. It benefits people who already own houses (and their real estate agents) because it’s a one-time boost in housing values. This would be just the latest chapter in a long history of government policies to boost housing prices — the mortgage interest tax deduction, the capital gains exclusion on houses, the extension of the mortgage interest tax deduction to second houses, etc. Each of these policies pushes up prices just once; if you want to keep pushing up housing prices, you have to keep adding sweeteners.
A temporary tax credit has a similar effect, but for a shorter period of time. It boosts the price of a transaction that would have happened anyway. It may create additional transactions, but is that a good thing? If someone could not have afforded a house without the tax credit, then what is he or she going to do when the tax credit goes away and the price of the house falls? In effect, the tax credit is a way of making houses temporarily affordable that would not otherwise be affordable, and we know where that leads.
So what is needed, then? Simple: remove all the artificial barriers to market entry and exit and allow prices to return to natural market levels.
Just once it would be nice to hear some policymaker or some real estate industry professional say that, in order for the economy to stabilize, home prices must revert to more normal levels – say, levels that are supported by wages or incomes – rather than the familiar refrain that home prices must simply stop falling.
It really paints the wrong picture about what is going on in the nation’s housing market if, by historical measure, homes are still overvalued by a large margin and the government takes extreme steps to support those valuations.
They are overvalued and it is ludicrous to believe that current inflated price points can be artificially maintained in perpetuity.
This is not to say that I am against lower taxes; far from it. But tax cuts in such arbitrary ways merely serves to keep economic inefficiencies in place which ultimately hurts the consumer both in the medium and long term. Maybe this is just a bone being thrown to the banks, perhaps? You know, those banks which also have been propped up through further, outrageous government spending.
This is merely another populist, liberal ploy from an intellectually bankrupt Senator to curry favor in the short term without any cognition of the long term effects of his policy. That, some may argue, we need to spend another 16,700,000,000 dollars to protect the “investments” already made demonstrates the problem: too much government leads to myriad more problems down the road.
It’s time to bring some sanity and freedom back to our markets.
Cross-posted to RedState.