In which I continue to take a stand against home-buyer tax credits
Well, it looks like we could be getting a fresh home-buyer tax credit any day now. What better way to fix a bubble caused by too much home-ownership than to encourage more home-ownership?
This time around, you don't even have to be a first-time buyer to take the credit. Nor do you have to be what most people would consider middle class—the income limit has increased from $75,000 to $125,000 for individuals and from $150,000 to $225,000 for couples.
I've already explained why I think extending the home-ownership tax credit is a bad idea. So for this post I'll poach from Jack Hough's recent meditation on the topic. (He works at a place with "Smart" in its name. There might be something to that.)
Jack—if I may call him Jack—makes a number of points, including 1) subsidies raise prices, and house prices are already too high; 2) there are more effective ways to stimulate the economy if that's the goal (see, for example, food stamps and unemployment benefits); and 3) we already have a massive housing stimulus plan called the mortgage interest deduction.
My favorite of Jack's points, though, is this one:
America has no money.
Perhaps I should have mentioned this earlier. America was last debt-free in 1835. The last year it spent less than it collected from taxpayers was 2001. In the government's fiscal 2009, which ended Sept. 31, it overspent by an estimated $1.4 trillion, more than ever before in dollars, and more than any year since 1945 in proportion to the size of the economy. Perks for house buyers don't come from the government, ultimately. They come from taxpayers, either this year or in future years when the debt is paid.
By Nov. 30, the government will have spent an estimated $8.5 billion on its current round of house-buyer payments... Early projections for the proposed extension say it will cost close to $12 billion. Together, the programs would cost the average household more than $170 if the bill were paid right away. But it's borrowed money. The interest rates charged to America for its debt at the moment are blessedly low--about 3.5% on 10-year loans. The average since the 1960s is 6.9%. Let's split the difference and assume the nation will pay roughly 5% on its debt over the next 30 years, the time it might take one of those $8,000 subsidy recipients to pay off the mortgage. By then the program's true cost will have increased more than fourfold.
Well put.
Barbara!
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1
If memory serves, you have been a strong supporter of loan modification/foreclosure prevention programs, which are in effect the same type of giveaways to people who made the mistake of buying a home they couldn't afford.
Aren't you contradicting yourself by opposing this subsidy? Personally, I'm opposed to both programs.
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2
Phasing it out slowly is probably a safer than letting it expire abruptly at the end of this month and then fretting over what impact *that* will have on the economy.
But at what point does this "temporary credit" start to become just business as usual and have no impact at all? Aren't all those folks who rushed to close by the end of this month feeling cheated? Or the non-first time buyers who bought a house over the last year. I'm starting to feel cheated because none of these tax breaks directly benefit me. I want my cut!!
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3
[...] “In which I continue to take a stand against home-buyer tax credits” [...]
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4
@dotybj: I wouldn't say that loan mods and tax credits are the same, for many reasons. One example: with tax credits, the Treasury collects less revenue and there are fewer resources for all citizens; with loan mods, private lenders change the terms of their contracts and either receive less money or money at a different time than they were originally anticipating.
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5
But you have to admit that loan mods artificially elevate prices by keeping foreclosures off the market, which was Jack's point #1 against subsidies.
Also, aren't we talking about government programs? If it is beneficial or cost effective for lenders to make loan mods rather than go into foreclosure, then by all means they should do it. And if there are legal roadblocks, like diffused ownership of loans due to securitization, that the gov should help clear those roadblocks.
What I have a problem with is the government consistently interfering with the explicit goal of keeping home prices up.
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6
It's nicely put "homeowner tax credit," but who in the end does it benefit? The bankers! Just like the tax deduction on mortgage payment, who does that really benefit? once agian the bankers! No wonder that saw MBS as a never ending source of income, and the on too CDO^N since theoretically it could go on forever. Yet the illusion of permanent prosperity especially for those greedy banksters.
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7
@dotybj: "But you have to admit that loan mods artificially elevate prices by keeping foreclosures off the market, which was Jack's point #1 against subsidies."
I think there's a key question here:
Are the un-modded loans actually going to make it to foreclosure?The accountants have worked around the problem of putting "foreclosures" on the market. And there are still lots of un-foreclosed homes that actually should be.
At least modifying them can get money to the right people.
And yes, @Barbara, the extension is pretty much BS. Yes most houses are still over-priced. But to a whole group of 20-somethings who've "never seen prices this low", the $8k is all they need to keep money moving and help solve some insolvency problems.
Is it a great *financial* idea? Not in the least. But the whole thing is driven by emotion. Humans don't like sudden change. We hate it so much that we're willing to pay money just to make the inevitable change gradual instead of sudden
It's hardly rational, but that's just the way we are.
As a renter with cash in the bank I guess I just have to keep waiting.
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