It’s Fix the Tax Code Friday!
Buoyed by the popularity of the Cash for Clunkers program – and the perceived success of the First Time Homebuyer’s Credit – Congress is considering whether to extend both programs in 2010.
Various bills suggest extending the homebuyer’s credit from six months to a year – and even increasing the amount of the credit to $15,000. And as China, France, and Germany each consider extending their version of the Cash for Clunkers programs, some members of Congress are thought to be eying a second version of the plan.
So today’s Fix the Tax Code Friday question is:
Should Congress extend the first time homebuyer’s credit or re-introduce the Cash for Clunkers program? Both? Neither? Speak up, I can’t hear you!
It is time to get out of bailout mode. Until when do we keep bailing people out? The only way we will truly recover is when we all can stand in our own feet without government help.
I’m all for an extension of the first-time homebuyer credit. I’m 41 and don’t yet own my first home (despite being one of those unsavory “class action attorneys” you hear so much aobut – but I’m an associate, not a partner, so that explains that). Prices on real estate in Los Angeles area have declined precipitously in the last year. Nice, new 3BR-2.5BTH condominiums (condominiums!) are now below $500,000 for the first time in years. It’s finally a close call for my wife and me. But since buying a first home is a big deal, and I tend to research and hesitate a bit, extending that tax credit might get me off the fence and into the market as buyer in the next 6 – 12 mos.
i never understood the credit to begin with. after all that talk about people being irresponsible and living beyond their means and taking on too much debt to do it the government goes and subsidizes the activity that was criticized for creating these problems. i don’t see the sense in that.
it should end.
First things first – don’t make the first folks that got the $7,500 pay that back. Which I think will happen anyway. But as far as extending the credit – NO – it shouldn’t have happened in the first place. The Cash for Clunkers program (assuming each car traded in got 10 mpg more and each car drove 12,000 a year and a barrel of oil cost $70) cost us a little over $8 for each $1 saved in oil costs. Not a really good deal no matter how you look at it. Each one of the home sold under this program costs the government “x” amount of dollars ( I am incapable of calculating the interest the government will have to pay to borrow the money they are using) and will help the economy how much? The following was attributed to Cicero in 55 BC “The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.” He really didn’t say all of that, only part of it but I like it with the addition.
If a program like either of these is extended, it probably will become an institution, and will never be repealed. This would be especially true for the homebuyer tax credit.
I don’t approve of extending the cash-for-clunkers program. It was a nice way to clear off dealers’ overcrowded lots and to give a significant part of the economy a quick boost, but except for that it makes no economic sense. Certainly there are far cheaper and more long-lasting ways to reduce our dependence on oil; also, regarding certain trucks, the program supported repolacing a truck with one that got 1 mpg better mileage than the clunker — a meaningless difference well within the margin of error. (By the way, I have been toying with getting a new car; the Nissan dealer told me that sales were perking along nicely now — possibly some BS to get me to make a quick decision. The bcar I’m interested in gets 2 mpg better than the one I’d trade — BUT the new one requires premium and mine runs on regular, so no actual gas $ benefit to me at all.)
The homebuyer tax credit is a bit different. The original $7,500 you-have-to-pay-it-back credit was really an interest-free loan from the Government; that’s not as “bad” as a genuine tax credit. It’s hard to say how much it has “stimulated” the housing market because a considerable amount of buying interest is due simply to prices that, in many areas, are much lower than they were 3 or 4 years ago. (Here in Little Rock you can get a very nice 3-bedroom 2.5 bath condo for well under $200,000 and an “okay” one for about $100,000, so $500,000 for same in LA still seems outrageous to me.)
New housing is a significant chunk of the US economy, and starts are half of what they were in the first half of the decade. If an extended credit applied only to NEW homes, it would have maximum effect as far as stimulating the economy goes. Allowing the credit for existing homes simply makes it cheaper for the buyer, but nothing new is produced. In a derivative sort of way I suppose it helps to “support” the market and, in a way, could make saole prices for new homes slightly more appealing to builders.
Bottom line: since I wouldn’t qualify for the credit I probably wouldn’t support extending it — might see some sense in extending it only to new homes.
Reality: The housing credit will be extended because of the positive political effect and the attractive opportunity for Democrats to crap all over Republicans who dare to oppose it. Cash-for-clunkers will get much less support, and probably won’t be renewed.
My comments for the cash for clunkers program is the same as those for the 1st time home buyers credit. It did what it was supposed to do that was to get dollars circulating again. It was successful now let it die.
I think the Cash for Clunkers program did some of what it was intended to do. It got some old cars off the road and replaced them with more fuel-efficient cars (actually, I think the difference in fuel economy over the entire fleet was much more than 1 mpg, but I digress). However, I think it died when it should have. Likewise, the first-time homebuyers’ credit should die the same way. We should not use our tax dollars to subsidize credits for any first time buyers who may not be able to afford their mortgages in the future (it’s the bubble, stupid!). It should not be institutionalized in our tax code.
BTW, JBruce,
I had a car that required premium gasoline — to power its tubocharger. When I bought it, premium gasoline was about $0.10 above regular. Expensive even in those times before the big gas inflation. But I’d like to tell you a story about that car: I was entering the freeway, and someone wanted to be sure he got ahead of me. I saw that and said, ” Oh no, you don’t!” and floored it.
I must have experienced at least 3g . And I entered the freeway rather sloppily and very scared (the car was fortunately equipped with all-wheel drive). What I’m saying here is that if you feel you need that kind of power, I’d say, perhaps not. You should consider the kind of power your brain can handle (for me, perhaps a moped).
I traded it in after two years, even though I usually keep cars until they fall apart. In the first place, premium gas became too rich for my blood, and I’d already realized that I actually DO NOT care if someone gets ahead of me on the freeway, not to mention the fact that it took the upper layer of dermis off my thighs in the summer with its leather seats and was uncomfortable to drive. So, don’t fall in love with the “beef-mobile” Look instead at what you really need.
Melody: The car I was looking at is a 2010 Nissan Maxima; the car I’d be trading is a 2003 Infiniti G-35. They both have about the same power and speed “off the line”, etc. And neither has leather; it’s nice to see that someone else out there doesn’t like leather either. Anyway, I’m not trading cars. Not while the one I have is in fine shape, low miles for its age. I’ll go back to my original intent: drive it until it’s too unreliable for a long trip.
Disclaimer: I got the 2008 loan (I suppose it’s a credit if I happen to sell the house at a loss).
I don’t support this program. It’s pork for the real estate and construction industries, and it artificially raises the price of housing. It’s exactly the kind of incomplete thinking about economics that got us into the housing mess in the first place.