Free Markets, Free People

Meltdown On The Left

Dean Baker at American Prospect has an uninformed hissy fit over the amendment GA Sen Johnny Isakson offered to the pork, er stimulus bill. The amendment gives a $15,000 tax credit to those buying a principle residence – note that, principle residence – next year. Baker is sure it is the house flipper’s amendment.

And this is before we get to any gaming. It’s hard to see why tens of millions of people wouldn’t figure out a way to buy a house from a friend or relative and get their $15k. If we can get one-third of the country’s homes to change hands (lots of jobs for realtors) that would be good for $375 billion.

But no cuts

The usual solution

It would have been helpful if reporters had talked to an analyst who could have explained these points for readers.

As much as I criticize the media, someone needs to tell Baker that this information is being and has been reported (I heard it explained when the amendment was first discussed). Below is one example:

The U.S. Senate on Wednesday unanimously approved an amendment to the economic stimulus bill by U.S. Senator Johnny Isakson, R-Ga., that gives a $15,000 tax credit to anyone who buys a home in the next year.

Isakson’s amendment would provide a direct tax credit to any homebuyer who buys any home. The amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.

The amendment would allow taxpayers to claim the credit on their 2008 income tax return. It also seeks to prevent misuse by only allowing purchases of a principle residence and by recapturing the credit if the home is sold within two years of purchase.

Pretty clear to me.

That dispensed with, here’s the real reason the left is so up in arms with this amendment:

Somehow, Isakson has this thing costing just $19 billion. Let’s break the Washington rules and try a little arithmetic. Even with weakness in the housing market, it is still virtually certain
that we will sell close to 5 million homes in 2009. The overwhelming majority would qualify for the full credit. So, we get 5 million times $15,000. That sounds a lot like $75 billion.

That’s right – this would put more money in people’s pockets and make less available for the government to spend on dog parks and Frisbee golf courses.

Greg Sargent says:

But the ultimate real world cost of this measure has been disputed, with some critics predicting that it would cost much more, given the expected levels of housing sales this year.

Turns out the critics may have been right. The nonpartisan Joint Committee on Taxation has just sent a letter to Chuck Schumer, who’s on the Finance Committee, responding to Schumer’s request that the Committee score an estimate of the measure’s cost.

The total price estimated by the Committee? $35.5 billion — double the original cost, says the letter, which was sent our way by Schumer’s staff.

That’s kind of a big deal, and could actually alter the ultimate cost of the overall bill, potentially creating more complications as this gargantuan measure lurches fitfully towards passage.

Anyone – do you believe that all of the estimates contained in this “gargantuan measure” are dead on? That, among 900 billion of government spending, there will be no cost overruns, budget overruns or cost underestimates?

The problem, as stated, is it “costs” the government by putting money precisely where it belongs – in the pockets of the citizens.

And that’s because most of them believe, as Robert Reich does, that government is the only answer:

Regardless of your ideological stripe, you’ve got to see that when consumers and businesses stop spending and investing, there’s only entity left to step into the breach. It’s government. Major increases in government spending are necessary, and the spending must be on a very large scale.

Notice the smuggled premise – that consumer and business spending can’t be spurred by any other means than government spending. Of course that’s nonsense. And the Isakson amendment is one of many ways that can be done. Other obvious means would be a withholding tax cut (or suspension). That’s an instant stimulus.

The usual result

The predictable result

The CBO says the debt being incurred through this bill will crowd out private investment over the coming years. The key to recovery is private investment which leads to business expansion which leads to jobs.

What part of that don’t the Democrats understand?

Well, if you read Joshua Holland, most of it:

And the GOP’s approach is based on the theory that a “rising tide will lift all boats.” A simple question: how’s that theory been workin’ out for ya?

Mr. Holland, look around you and how you and others live. Then take a trip to, oh, I don’t know, China. Tell us how those boats floated in the past as compared to how they’re floating now. Or India. Or Poland. Or the Czech Republic. Etc.

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7 Responses to Meltdown On The Left

  • Admittedly I haven’t slogged through it to know if it is a refundable or non-refundable tax credit.  But it would be money back, if the person pays federal taxes of the amount of the Refund.  Otherwise its subsidized housing. 

    And if someone can use that tax credit to help secure a deposit, oh my.  Deja vu all over again.

  • Wait! My husband and I bought a house in May 2008. We put down 50% and got a 15-year loan (on which we are making extra principal payments) for the balance.

    We sure could use a tax credit. Do we get it?

  • Wouldn’t that be ‘principal’ (as in ‘primary’) residence?  I mean, it could be a glass house, but …

  • I slogged through it yesterday.

    We sure could use a tax credit. Do we get it?

    No. The purchase has to be in 2009.

    “(1) DATE OF PURCHASE.–The credit allowed under subsection (a) shall be allowed only with respect to purchases made– “(A) after December 31, 2008, and “(B) before January 1, 2010.

    Also, if this should pass as part of the stimulating American Recovery and Reinvestment Act of 2009 be aware of the gotchas.

    The tax credit taken reduces the basis of your house by the amount of the credit taken. That means that should you subsequently sell the property, you have up to $15,000 more in capital gains than you would without the tax credit.
    You can’t sell the property or vacate the property as your principal residence for 24 months and keep the tax credit. If you do, whatever tax credit you took in ’09 is added to your tax liability for the year you sell or vacate. If that all happens in ’09, it’s a wash. If it is ’10 or ’11, you’ll find yourself owing up to $15,000 more in taxes for that year.
    This doesn’t change my view of the Porkulus. This is just lard being smeared over the Stimulus Bill so it goes down easier. And, with Isakson and Chambliss both having their names on this amendment, they’re probably going to vote for it.

  • The value of your house just went up $15000. If I know that you will get a $15000 tax credit for buying my house, I will raise the price $15000. The best thing for the airheads to do is stay out of the way.

  • If I know that you will get a $15000 tax credit for buying my house, I will raise the price $15000. 

    Good luck with that anytime during 2009.

  • That’s the same pricing strategy I would use for those TV converter boxes.