Government Spending

Successful, Schmuccessful, As Long As It Costs Too Much

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You could buy 40 of the most expensive green ones with one tax credit.

I'm not the only one taking issue with The New York Times' wording today. Bill McBride at Calculated Risk, who is usually extremely circumspect about second-guessing his citations, corrects some language in the Times article "Home Tax Credit Called Successful, but Costly."

There is no question this program was very costly. And why is the Treasury confusing activity with accomplishment? Sure sales briefly surged, but were new households formed? How many new jobs were created?

[…]

[T]his shows two failures of the tax credit: 1) the high cost, and 2) it was just moving people from apartments to homes and didn't reduce the excess housing inventory (yes, rentals count as housing inventory too).

[…]

[T]his has been the policy—support asset prices by limiting the supply (all the foreclosure delays), and pushing demand (low mortgage rates and the tax credit). This has helped the banks significantly, and [Economy.com's Mark] Zandi argues this has boosted confidence. Maybe … but I'm not convinced that supporting house prices above the market clearing level to help the banks and boost consumer confidence makes sense.

Note that the Times' true-but-misleading headline comes from the copy editors, not from reporter David Kocieniewski, and that Calculated Risk's clarifications are of claims made by the Treasury Department. The actual article is a would-be-funny-if-it-weren't-true tour of a program that essentially gave $8,000 tax breaks to a bunch of people who would have bought houses anyway. And while Kocieniewski does track down a couple of Purdue students who made their purchasing decision based on the credit, the story also details how the program gave a boost to people who didn't even buy a house:

After the number of homes sold in January and February dropped to record lows, sales rose 6.8 percent in March from a year earlier, as buyers raced to cash in before the credit expired. Nearly half of all March home sales involved first-time buyers, according to the National Association of Realtors.

"It's true that a lot of people who got the credit might have bought without it, but they might have bought in 2012 or 2013," said Senator Johnny Isakson, a Republican from Georgia, who worked for 30 years as an agent. "This got them to buy in 2009 and 2010, when we needed to shore things up."

But the program was open to widespread misuse. The first two phases of the credit did not require taxpayers to prove that they had actually bought a house. The Treasury's inspector general found in October 2009 that the I.R.S. had allowed $139 million in credits to people who had not yet bought homes, and $479 million to taxpayers who were not first-time buyers.

In a sane world, the first-time home buyer tax credit would be a joke, and the tales of waste, fraud and four-year-olds buying homes detailed in this report [pdf] by the Treasury's own inspector general would be told around campfires, by people who are living outdoors because they're waiting for the real estate market to hit bottom sometime in the 24th century.

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  1. “It’s true that a lot of people who got the credit might have bought without it, but they might have bought in 2012 or 2013,” said Senator Johnny Isakson, a Republican from Georgia, who worked for 30 years as an agent. “This got them to buy in 2009 and 2010, when we needed to shore things up.”

    I believe the technical term for this strategy is “kicking the can down the road”.

    1. “Pulling demand forward” but yeah

    2. Speaking as a new homeowner who just bought a house, I doubt this moved up demand more than 2 years, at best it encouraged someone already going to buy within the next year. I think the slump in the next 6 months will average out 2010.

  2. ROTFL, wow you got that spot on! Well done.

    Jimmy
    http://www.anon-vpn.se.tc

  3. WOw, you got that right! Spot on bro, Spot on!

    Dusty
    http://www.anon-vpn.se.tc

  4. It seems like another consequence is that people who advanced their purchase decision probably bought into a declining market. Thus, given that many had low down payment purchases, once prices fall to their clearing level, these folks will all be under water, when they might otherwise have waited and gotten a better deal, even accounting for the tax credit.

    Thus, we may be creating the next wave of foreclosures with shitty policy today…

    1. The legal term for that is FRAUD.

        1. No different than what Goldman Sachs did.

  5. As long as they can look like they’re doing something today, but leaving no fingerprints to be detected on the catastrophe tomorrow, they’ll do it.

    1. I don’t want to sound trite, but free markets DO work. As long as the social and economic engineers ply their craft bubbles and inflated prices will prevail. Leave the market to the market and a natural adjustment will happen, prices will end up where they truly belong and we can move forward. When will politicians and rent seeking people understand that we will all fair better in the absence of interference.

      1. When pigs fly?

      2. The problem is we social loss while keeping gain private.

        No one is offended by the market when things are going good. But the minute a correction happens, “action must be taken.”

        This inevitably messes up the market itself.

        We are too impatient and unwilling to suffer through any kind of bad outcomes to allow the market to correct. Instead, any little blip beyond the rainbows and unicorns is considered a “Market failure.”

        Asshats, every one of them.

  6. Don’t make any waves until my refund check comes in…

    1. Ya right. I’m pissed tonight. I claim zero and zero, I still don’t get a refund. I used to be a tax protester, I lost my case and paid my “debt” to society. For the last 20 years I have accepted my “social responsibility” and have donated over 47% of my gross to those things that the government forces me to. I have also voluntarily donated 10% of my gross to causes that I want to donate to. I’m done. Fuck it. I’m done with this shit. Last time it took the IRS six years to catch up with me. I figure that they will be too busy going after people that aren’t buying health insurance and it will take them a lot longer this time. Let the revolution begin…..I plan on living long enough (I hope) to at least fire a couple of “shots”.

      1. I keep seeing the ads all over the place for ‘settle with the IRS for half of what you owe’.

        If I can pay half later, why should I pay the whole now?

        There needs to be a serious movement to get a whole bunch of people to stop paying their taxes one year.

        1. because they waive part of the interest and it ruins your credit to hold out on the gov’t. Its not exactly a stellar deal, plus the cost of paying those people doing the negotiating for you.

          1. What if I don’t need any credit?

          2. Yeah, you have to REALLY owe them a lot before you come out ahead. Willie Nelson was in to them for 30 million, which he no longer had, so they settled for ten cents on the dollar. Same year they came after me for $440 that I definitely didn’t owe. It took me 3 years to get them to admit that I didn’t owe it.

            Of course, the Willie Nelson case may have made things worse for those Celebs who followed. Westley Snipes didn’t make out so well in his tax cheat case…

  7. Feds’ Pile-of-Free-Money Program Highly Successful; Pile Depleted in 24 Hours

  8. “And why is the Treasury confusing activity with accomplishment?”

    That’s obvious. It is pretty easy to point out that you did something, it is orders of magnitude more difficult to prove that you did something productive.

    1. More like, “We tried as hard as we could! We can’t be blamed for not trying!”

      Hmm, where have I read this before?

  9. Fuckers. First, they buy houses they can’t afford and then they take tax credits they don’t deserve.

    Everyone should just stop paying their taxes. Fuck this shit.

  10. If you say “fuck” enough times, you’ll surely get your way.

    1. Yeah, I know: fuck you!

      1. The Big Lebowski had it covered.

        Cowboy: “Dude, I like your style.”

        The Dude: “Thanks… I kinda dig your style too.”

        Cowboy: “There’s just one thing… would you mind not cussing so much?”

        The Dude: “What the fuck are you talking about?”

  11. So, this is the “civilization” we pay taxes for? I’m not impressed.

  12. I wonder if the IRS expects you to claim the interest and penalties they “forgive” as income in the year they are accrued.

  13. Isn’t this just more fraud by the administration?

    But they do have more people grateful to them for the handout who will campaign and vote for them. On that basis a politican obviously believes it justifiable to call it a success…

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