Actually they are considering something much stupider. Congress is proposing to extend the $8,000 tax credit for buying a home and to have it apply to all homebuyers, not just first-time buyers. From an economic standpoint, there is no more reason to want people to buy homes than to want them to buy pizzas. In fact, since the bubble in the housing market was the cause of the current economic crash and the first-time buyers' credit slowed the process of adjustment in many markets, we should much prefer to give people money to buy pizzas than houses. Fortunately, extending the credit to all homebuyers, not just first buyers, will have less of a distortionary impact since current homeowners will also be selling homes, meaning that it will have no net change in the demand for homes. Of course, this broader credit would offer more opportunities for gaming, but who cares? If a person gets the $8,000 credit for "buying" their brother's home and vice-versa this scam has at least as much economic value as if they actually did buy a home. It would have been useful if USA Today could have found some economists who could have explained how this proposal from Senators Isakson and Dodd is hare-brained even by Washington standards.
--Dean Baker
