There’s been an interesting debate in Washington (at least among tax nerds) about whether all tax cuts are a good idea. I’m largely sympathetic to cutting taxes anytime and anywhere, though I certainly agree with those who argue that supply-side tax-rate reductions are far better than tax credits and other forms of social engineering through the internal revenue code. But perhaps the debate can now be settled. The home-buyer tax credit, much beloved by politicians from both parties, is absolutely horrible policy. The Wall Street Journal’s editorial is a great summary of this corrupt and wasteful tax preference:
It’s hard not to laugh when viewing the results of the federal first-time home-buyer tax credit. The credit, worth up to $8,000 for the purchase of a home, has only been available since April of last year. Yet news of the latest taxpayer-funded mortgage scam has traveled fast. The Treasury’s inspector general for tax administration, J. Russell George, recently told Congress that at least 19,000 filers hadn’t purchased a home when they claimed the credit. For another 74,000 filers, claiming a total of $500 million in credits, evidence suggests that they weren’t first-time buyers. Among those claiming bogus credits, at least some of them were definitely first-timers. The credit has already been claimed by 500 people under the age of 18, including a four-year-old. …As a “refundable” tax credit, it guarantees the claimants will get cash back even if they paid no taxes. A lack of documentation requirements also makes this program a slow pitch in the middle of the strike zone for scammers. The Internal Revenue Service and the Justice Department are pursuing more than 100 criminal investigations related to the credit, and the IRS is reportedly trying to audit almost everyone who claims it this year. Speaking of the IRS, apparently its own staff couldn’t help but notice this opportunity to snag an easy $8,000. …Mr. George said his staff has found at least 53 cases of IRS employees filing “illegal or inappropriate” claims for the credit. “In all honesty this is an interim report. I expect that the number would be much larger than that number,” he said. The program is set to expire at the end of November, so naturally given its record of abuse, Congress is preparing to extend it. Republican Senator Johnny Isakson of Georgia is so pleased with the results that he wants to expand the program beyond first-time buyers and double the income limits. …Meanwhile, the credit continues to distort the housing market and postpone the day when home prices can find a floor that is a basis for a stable recovery. More than two years into the housing bust, trillions of dollars in taxpayer losses or guarantees via Fannie Mae and Freddie Mac, and amid an ongoing plague of redefaults in federal programs to prevent foreclosures, politicians are still trying to manipulate housing prices. And leave it to Congress to design a program that even a four-year-old can scam.