The First-Time Homebuyer Tax Credit is set to expire on Nov. 30, and as you’d expect from one of the most powerful lobbies in Washington, they are looking to hold their hand out beyond Nov. 30. The National Association of Home Builders and the National Association of Realtors, two groups whose information is about as close to the truth as The Onion, are feverishly lobbying Congress to extend the credit.
The Baltimore Sun described the two groups’ campaign:
Delegations of home builders and real estate brokers already have begun descending on district offices, delivering what Jerry Howard, president and CEO of the builders association, calls “the hard economic facts” –– the numbers of houses sold in each congressman’s district that are attributable to the tax credit; the economic ripple effects on local businesses, manufacturers and service industries; new jobs and income; plus the additional taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. revenues that all this activity will help produce.
On a national basis, according to economists at the National Association of Realtors, anywhere from 300,000 to 350,000 additional sales of houses will be stimulated this year by the credit. Each home sale generates about $63,000 in downstream “ripple effects” elsewhere in the economy, they say – sales of furnishings, appliances, lawn mowers, landscaping, renovation materials, plus moving expenses.
This information should be taken with a grain of salt by members of Congress. What the paid shill Jerry Howard won’t tell you is what’s not seen: the deficit financing and the resources that were diverted from other productive activities. I could show with B.S. economic activity statistics how a tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. for strip clubs would be an economic boom to a region, but that doesn’t make it good public policy.
Never do these analyses address their fallacy of the ceteris paribus (all else equal) assumption. Also, look at the NAR logic: moving expenses are good for the economy. That’s pure hogwash. If I invented a space capsule machine tomorrow that could magically take all your stuff from point A to point B (and the machine was $5), according to the Realtors logic, government should ban it because moving expenses would be lower. The same for renovation materials. This is the broken window fallacy that would make any econ 101 student laugh.
Finally, the homebuyer tax credit is 100 percent refundable, making it in no substantive way different from a government spending program. Not even critics of the tax expenditures concept should disagree given that the amount one receives in credit is totally INDEPENDENT of the person’s tax liability. The program is just run via the IRS so we call it a “tax cut,” whereas if it was ran via HHS, we’d call it spending (or even put it in a negative light and call it welfare for homeowners). There is no economic difference between the two; it’s pure semantics. (At least a nonrefundable credit has a floor of zero and thereby creates a zero percent marginal tax rate zone.)
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