Tax break for homebuyers?

by on February 4, 2009 at 11:04 pm in Economics | Permalink

I'm not sure I understand the proposal, but here is what the NYT says:

The Senate on Wednesday voted to expand the economic stimulus package
with a tax credit for homebuyers of up to $15,000, a provision
championed by Republicans as addressing a root cause of the recession.

Like Arnold Kling, I wish to shift the economy out of housing, not into it again. I also believe that the supply of homes is relatively elastic right now.  The tax credit will subsidize the new buyers without propping up the price of homes.  Demand will go up, supply will go up, price will stay more or less on the same trajectory, and banks won't be any healthier.  The subsidy goes to new home buyers and why should we be helping them above all others?  Aren't they relatively wealthy on average?  (Not that there's anything wrong with that.)  Aren't some of them the dreaded "flippers" and speculators for that matter?  (Can we really enforce the primary residence requirement?)  Do we really want to push people into being less diversified and less geographically mobile in the labor market?  And here's Alex's post from earlier today.

There's a whole other debate you could have on whether we should be encouraging people to buy outputs which are already produced.

So far I say boo to the Republicans.  It could be I don't understand the proposal; if that is so please correct me in the comments.  Here are further discussions of what is going on.

1 TomHynes February 4, 2009 at 11:30 pm

It looks like there used to be a requirement that the credit be repaid, but that is out now.

http://www.baltimoresun.com/business/realestate/bal-re.harney25jan25,0,2870119.story

Does the credit get paid out at closing? Otherwise, somebody has to make a short term $15,000 loan.

If you find the text of the bill, please link to it.

Is there a recapture? I might sell my house to my adult son, then buy it back next year. Teach him to be a flipper.

2 A. F. February 4, 2009 at 11:36 pm

I don’t think you would find yourself at odds with many Republicans in being skeptical of this measure. Even arch Republican pundit Michelle Malkin has been vociferously agitating against the measure. It’s a big rant but I think you are talking about the same thing?

http://michellemalkin.com/2009/02/02/sen-mcconnell-proposes-more-big-government-to-fix-big-government-debacle/

3 Timothy February 5, 2009 at 12:06 am

“Like Arnold Kling, I wish to shift the economy out of housing, not into it again.”
But this is only one aspect of what needs to happen, that is shifting the entire economy out of current consumption and into productive investment. The spending provisions of the stiulus are aiming to prevent this from occuring.

4 tonynoboloney February 5, 2009 at 12:49 am

Why aren’t we talking about job creation instead of housing? Shouldn’t republicans be talking tax breaks to small business and $$ incentives to upstart business on a per employee hired. Municipalities should get 50/50 grants for business incubators, and for creating tax incentive enterprise zones.

5 james February 5, 2009 at 12:54 am

The problem is that the Republicans have been playing chicken with Obama regarding the stimulus. Most of them are following the “I hope he fails” line which means attacking without a meaningful alternative. Obama should call their bluff and ask if not my bill what can you bring to the table? If this amendment is any indication, the answer is not much.

6 Chris February 5, 2009 at 1:44 am

It’s easy to see why the Repubs are playing chicken with this bill. They’re using the Dem tactic of stalling and trying to run it into the ground until the public gets mad/confused/apathetic and it’s such a mess that nobody will care and gridlock will ensue.

I think also the Republicans know that there’s only a couple of taxes left that they can cut for folks, and they know the Dems will never agree to a payroll tax cut or holiday.

Also, I’m here in California, and with the amount of short sales going on and shenanigans that have already happened, there could be people getting 1099’d by the IRS after closing short and then picking up this credit when they get something new. So what the heck?

7 Thomas February 5, 2009 at 1:54 am

This proposal is endorsed by stimulus expert Mark Zandi. That should be good enough, right? An expert is an expert.

If we think that the problem is that houses are in the wrong hands (people who can’t afford them), and don’t want to give money directly to those who made bad decisions, then I guess there’s some argument that moving houses to buyers more capable of affording the houses (if only after a taxpayer subsidy) makes sense, and the subsidy increase the supply of buyers even if it doesn’t raise prices. Which helps the banks by eliminating the bad borrowers.

Of course those of us who think the problem isn’t affordability will think this doesn’t work at all. And even if the measure led to a dollar-for-dollar increase in housing prices, it’s unlikely it would make a significant difference to the calculus of potential defaulters in CA or FL or NV. Housing prices are down significantly more than $15,000 in those markets (at the median). For many the choice would still be to walk away.

Moving first time buyers into the housing market in the present market probably doesn’t do much to increase the lack of diversification/mobility. In many communities–mine, for example–there is a relatively small backlog of new homes, and most aren’t affordable to typical first time buyers. In most cases the eligible purchasers would buy from an existing owner, freeing one person to move or diversify.

All in all, another bad idea. This seems yet another targeted tax cut which is meant to produce political support, not an economic response. If they want political support, why not do 2x last year’s? I’d grouse less about this mess if I got a big check. Less being the operative word. I’m easy–I got $2700 last year (and spent it!), and would happily do the same with $5400 this year. And the NY Times today had a bit suggesting I wouldn’t be the only one spending.

8 Matt February 5, 2009 at 1:59 am

“Like Arnold Kling, I wish to shift the economy out of housing, not into it again.”

And let’s kick the government out of housing while we’re at it.

9 Native American Apache/Blackfoot February 5, 2009 at 4:04 am

Why not kick the politicians out of government & soleve the problem once & for all. The root cause of this economic problem is geed coupled with deeption. Do you all get it yet? I think they all should go fly a kite! Remember the prophecys of those who once tended this land (note we do not belive in ownership, rather caretaking) Only after the last tree is cut down, and the last river has been poisoned & the final fish caught.. Only then will you understand that money is valueless & cannot be eaten. – Cree Words of Wisdom – We Wait for the Circle

10 Sean February 5, 2009 at 6:19 am

The Republicans did provide an alternative stimulus plan, so they are certainly not stalling or bluffing on stimulus. A good bit of economists also believe that stimulus today will have negative long-term effects as a government debt today will have to be repaid later which means in the mid-term lower government spending or higher taxes in exchange for today’s stimulus.

11 Sean February 5, 2009 at 6:19 am

The Republicans did provide an alternative stimulus plan, so they are certainly not stalling or bluffing on stimulus. A good bit of economists also believe that stimulus today will have negative long-term effects as a government debt today will have to be repaid later which means in the mid-term lower government spending or higher taxes in exchange for today’s stimulus.

12 Phil February 5, 2009 at 8:02 am

Tyler: This is a stupid, populist provision-but the rest of the bill is worse.

You seem to not be thinking on the margin on this issue.

13 jim February 5, 2009 at 8:35 am

I think this is ridiculous but at least everyone is eligible, not just “first time homebuyers.” With the demand and supply so out of whack, not including more and more supply as people are foreclosed on, adding $7500 or $15k to the mix isn’t going to suddenly shift things substantially. Some people get some money, we all get more debt, and the end result is that we’re still in the jam we’re in. We moved the ground up a few feet closer but we’re still falling.

14 LZ February 5, 2009 at 9:55 am

Text of the bill (starting on the lower right corner into the next page):
http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=S1441&dbname=2009_record

Unlike the existing first time home buyer’s credit (more like a loan), this credit is nonrefundable, has no income phaseout, does not double for married people, and is not recaptured after two years of ownership.

15 babar February 5, 2009 at 11:36 am

> Would a more interesting piece of legislation focus on stimulating foreign demand for U.S homes? What would be a good inducement to get foreigners to buy American homes?

that’s easy — immigration liberalization.

16 guy in the veal calf office February 5, 2009 at 12:41 pm

I agree with Phil in wondering why you are bothering with this. Its innocuuous relative to other spending in the bill. You can find better targets to aim your bully pulpit at; just check out readthestimulus.org.

17 Superheater February 5, 2009 at 1:00 pm

Correction:

Even if you don’t default you pay the plan
interest (but its credited to your account), so when you do withdraw the money-you PAY TAXES ON
INTEREST YOU PAID YOURSELF!!!!

18 Lord February 5, 2009 at 4:58 pm

Hey, it’s temporary, timely, and targeted. Oh, I see, not that target.

19 Matthew February 5, 2009 at 5:35 pm

I don’t understand what the fuss is about. It’s a tax credit. It’s taxpayer money back to the taxpayer. And, yes it’s to the buyer not the seller. The idea is to keep first time buyers in their homes. It’s not paid at close of escrow, it’s “paid” at tax filing (or at refund if your employer withholds).

I agree that this isn’t going to save the market, but why point fingers at a tax credit? Point your finger at the other spending programs. Paying less taxes surely isn’t going to hurt matters.

full disclosure: I stand to benefit from this credit… so… let me keep my money.

20 Matthew February 5, 2009 at 6:51 pm

Wait a second… did they move the window of the purchase date from September 2008 to January 2009?

that’s dirty if they did.

21 ash February 7, 2009 at 1:25 pm

There are stipulations in the amendment that prevent you from buying from an immediate family member and you have to live in the house for at least 3 years, and it has to be your primary residence. Overall, I think this may push people who are on the fence about buying into buying, or help them with down payments that they are still working to save. I don’t think it’s the worst idea and it may help move some of the existing inventory, but unless lending standards lighten up then most people won’t be approved for mortgages anyway.

22 Chris February 10, 2009 at 2:02 pm

FOR THOSE WHO BOUGHT IN JANUARY:
THE HOUSE PASSED THE BILL FOR A $7500 TAX CREDIT THAT DOESN’T NEED TO BE REPAID AND IS AFFECTIVE FOR PURCHASES OF HOMES AFTER 01/01/09.
THE SENATE CHANGED IT TO A $15,000 TAX CREDIT BUT IT IS ONLY AFFECTIVE FOR PEOPLE WHO PURCHASES AFTER IT’S SIGNED.
IF THE SENATE PASSES THERE’S TODAY, THEN THERE WILL BE A MEETING BETWEEN MEMBERS OF THE SENATE AND MEMBERS OF THE HOUSE TO WORK OUT THE DIFFERENCES BETWEEN THE 2 BILLS.
I BOUGHT IN JANUARY SO I OBVIOUSLY WANT THE $15,000 TAX CREDIT THE SENATE PROPOSED BUT WITH THE START DATE THE HOUSE PROPOSED.
YOU NEED TO MAKE YOUR VOICE HEARD AND CONTACT YOUR SENATORS AND HOUSE REPRESENTATIVE. THIS IS AMERICA SO YOUR VOICE IS YOUR POWER. E-MAIL THEM OR CALL THEM. HERE IS A CONVENIENT NUMBER. CALL AND ENTER YOU ZIP CODE AND IT WILL GET YOU IN CONTACT WITH ALL OF YOUR CONGRESSMEN. DECISIONS ARE BEING MADE, DO IT NOW. 1-866-924-NAHB (6242)

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