In which I continue to take a stand against home-buyer tax credits

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Well, it looks like we could be getting a fresh home-buyer tax credit any day now. What better way to fix a bubble caused by too much home-ownership than to encourage more home-ownership?

This time around, you don’t even have to be a first-time buyer to take the credit. Nor do you have to be what most people would consider middle class—the income limit has increased from $75,000 to $125,000 for individuals and from $150,000 to $225,000 for couples.

I’ve already explained why I think extending the home-ownership tax credit is a bad idea. So for this post I’ll poach from Jack Hough’s recent meditation on the topic. (He works at a place with “Smart” in its name. There might be something to that.)

Jack—if I may call him Jack—makes a number of points, including 1) subsidies raise prices, and house prices are already too high; 2) there are more effective ways to stimulate the economy if that’s the goal (see, for example, food stamps and unemployment benefits); and 3) we already have a massive housing stimulus plan called the mortgage interest deduction.

My favorite of Jack’s points, though, is this one:

America has no money.

Perhaps I should have mentioned this earlier. America was last debt-free in 1835. The last year it spent less than it collected from taxpayers was 2001. In the government’s fiscal 2009, which ended Sept. 31, it overspent by an estimated $1.4 trillion, more than ever before in dollars, and more than any year since 1945 in proportion to the size of the economy. Perks for house buyers don’t come from the government, ultimately. They come from taxpayers, either this year or in future years when the debt is paid.

By Nov. 30, the government will have spent an estimated $8.5 billion on its current round of house-buyer payments… Early projections for the proposed extension say it will cost close to $12 billion. Together, the programs would cost the average household more than $170 if the bill were paid right away. But it’s borrowed money. The interest rates charged to America for its debt at the moment are blessedly low–about 3.5% on 10-year loans. The average since the 1960s is 6.9%. Let’s split the difference and assume the nation will pay roughly 5% on its debt over the next 30 years, the time it might take one of those $8,000 subsidy recipients to pay off the mortgage. By then the program’s true cost will have increased more than fourfold.

Well put.