Soooo… You know that I wasn’t a fan of the first time home buyer credit. It was touted as a “stimulus” for middle class taxpayers to make home buying more affordable. The idea was that folks would rush to buy homes, thus buoying the housing industry, getting banks going again and more or less saving the planet. At least that’s how I remember it being pitched.
Initially, it was all good news related to the credit. After the IRS paid out nearly $10 billion to 1.4 million taxpayers, Moody’s Economy.com chief economist Mark Zandi reported that almost 400,000 new and existing home sales were attributable to the tax break. So good. Only, the report went on to say that some of those home sales were actually attributable to being “stolen from future demand” meaning that taxpayers simply had an incentive to buy now as opposed to later. The suggestion is that the housing market will slow post-credit (indications are that it’s already happening).
Despite the slowing, the credit did some good even if it was financed by the Treasury. So, of course we should extend the credit, since it’s so great and all, right? I mean, that’s what Congress is saying. For example, Senate Finance Committee Chair Max Baucus (D-MT) supports a three-month extension of the credit and similar bills are pending in the House.
Maybe not so fast. The IRS announced earlier this week that it is investigating more than 100,000 “doubtful claims” related to the credit. In fact, to date, the IRS has instigated 107,000 civil claims related to the credit – about 8% of the taxpayers who’ve applied for the credit. A quick turn of the math shows that to be up to $800 million in potentially false credit.
It’s not all individual fraud, either. According to a House Ways and Means oversight committee, the IRS is investigating 167 “criminal schemes” involving the credit.
And that’s just in the early stages of review.
Sheesh. I figured that what would really happen is just that it would nearly drain the Treasury and perhaps artificially push up home prices. I clearly underestimated the efficacy of the criminal mindset.
(Hat tip: Kay Bell)