Understanding Government

The New York Times’ Jackie Calmes reports that a high-profile part of the stimulus bill — the $8,000 tax-credit to first-time homebuyers — has not been rigorously audited by the IRS. Calmes gets her info from a Treasury Dept. Inspector General report that features some embarrassing facts — like that a four year-old claimed a homebuyer tax credit. But the more systemic problem is that 60 percent of the 1.4 million people who claimed the tax credit have incomes below $50,000. This suggests that the tax credit might be doing exactly what the housing bubble did — encouraging people to buy a home who realistically can’t make the mortgage payments.

The IG report ought to have immediate implications, because the debate over extending parts of the stimulus bill circles back to three provisions: extending unemployment benefits, extending COBRA beinefits — i.e. health care insurance for the recently unemployed, and extending a tax-credit for first-time homebuyers. The unemployment and COBRA provisions make sense: a continued lifeline for those the recession most directly impacted. The tax credit will be extended because it’s popular — liberal democrats, conservative democrats and even Republicans support it. But it’s random — why incentivize home ownership, which propelled the current recession? If Barack Obama and Congress have a fondness for tax credits, why not tax credits to, say, help people afford trips on an airplane, to help the crippled airline industry? Or tax credits to help people buy healthy, but expensive, organic food?

Calmes reports that the real estate industry is an influential supporter of the homebuyer tax credit. But it was pro-real estate economic and monetary polices that helped create the recession- they should be one of the last industries getting special consideration from lawmakers.