Congress included an $8,000 first-time home buyers tax credit in the stimulus package. This credit expires at the end of November. The Post discussed the prospects of its being renewed. While the Post included the realtors inflated claims about the economic benefits of the credit, it left out two important points. First, the vast majority of homes purchased with the credit would have been bought anyhow, they were just moved forward. In other words, people who may have bought homes in 2010 or 2011 have decided to purchase their home this year as a result of the credit. The cases in which people who would not have otherwise bought a home opt to do so because of the credit will be the exception. Therefore, for the most part, the economic benefits from the credit in 2009 are coming at the expense of economic activity in 2010 and 2011. The other point is that the credit is a redistribution from taxpayers at large to first time homebuyers. The size of the tax credit is equal to almost two years of TANF payments to a typical family and could pay for approximately 2.5 kid years of health care under the State Children's Health Insurance Program. This is a questionable redistributive policy to homebuyers who have higher incomes on average than renters. (Full disclosure: I benefited from this tax credit -- thank you very much, suckers!)
--Dean Baker
