Feeds: 
symbol identifies content for paid subscribers only.
House Flipper Tax Credit Will Cost More than Promised
The NYT substantially understated the cost of a $15,000 tax credit that the Senate approved for anyone who sells their home to buy another home in 2009. (Actually, the credit is for buying a home, but the vast majority of buyers will also be sellers.) The NYT told readers that the cost of this credit, combined with a $1,000 credit for buying cars, would be $30 billion.
Actually, the Joint Tax Committee puts the cost of the house flipper tax credit alone at $35 billion. The combined cost of the two measures would be close to $45 billion.
--Dean Baker
COMMENTS (4)
Dean,
It seems to me your back-of-the-envelope estimate yesterday of $75 billion is closer to the mark. Any idea how JTC got only $35 billion?
Omark
Posted by: Omark | February 6, 2009 10:17 AM
Dean,
I am somewhat encouraged by this tax credit. I believe that it is likely to have a greater stimulus than most tax cuts. My reasons are:
1. The credit will encourage house sales. Every time a house sells a number of workers are involved in the transaction -- everyone from real estate agents to housing inspectors.
2. The tax credit is likely to result in demand for new housing. To be sure, there is a supply of unsold new housing. But as those units are actually sold, builders will find incentive to undertake new construction. Further, a portion of those who sell a home will want to design and build their own homes rather than purchase existing homes. This would provide some immediate employment in the building sector.
3. The credit is likely to increase the demand for mortgages. This type of "retail" demand is likely to result in the employment of many in the lower rungs of the financial sector. Not a bad result.
Why are you so negative on this tax credit?
Posted by: Ron Alley | February 6, 2009 1:31 PM
From down here in the poorest 2/3, I don't see a $15,000 tax credit as much of an incentive to buy a house, particularly in areas where house prices are high relative to incomes. How much benefit will people gain if they buy a house and then get laid off, or have their wages reduced, or the price of the house then falls 10%.
Posted by: PeonInChief | February 6, 2009 5:52 PM
Dean is down on the housing tax credits because they would just tend to reinflate a bubble.
Not only do people not learn from or remember things that happened long ago, such as the Depression, recent events don't seem to make much impression either. Interest-rate cuts and other actions by the Fed in 2001 played a major role in the housing bubble and probably other speculative overextension. Federal funds rate is now down to zero and Republicans want to subsidize housing - this may be even worse than the last cycle.
When the government spends money for stimulus, it should be on things that are not supplied, or not supplied in sufficient quantity, by the private sector. This builds up private demand but not supply.
Posted by: skeptonomist | February 7, 2009 10:43 AM