If the price of a good is too high, and supply increases, the price of the good will decrease to lower the supply. If the price doesn’t decrease fast enough, government will force it down.

Enter First-Time Home Buyer Tax Credit

Ignoring Bastiat’s That Which is Seen, and That Which is Not Seen and the broken window fallacy. Ignoring time preference and the expediting of future goods to increase immediate demand with disregard for future demand.

The first-time home buyer tax credit seems like a great idea.

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

This should read:

The American Recovery Theft and Reinvestment Destruction Act of 2009 authorizes a tax credit the theft of up to $8,000 for qualified first-time home buyers anybody who’s salary is low enough and has not owned a principal residence for three years who plans on purchasing a principal residence on or after January 1, 2009 and before December 1, 2009 on into the future.

Let’s read the FAQs.
Some of these FAQs have been shortened.

Question 2:

Q. What is the definition of a first-time home buyer?
A. The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase.

No, a first time home-buyer isn’t somebody who is buying a home for the first time. It’s just somebody who hasn’t bought a home in a few years.

Question 4:

Q. Are there any income limits for claiming the tax credit?
A. Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return.

This isn’t a problem with the FAQ, more with the program. Is the purpose to put people in homes or to stimulate the economy (Although it won’t work either way)? If the purpose is to put people into homes, then this would stimulate another unsustainable housing boom. If the people can’t afford homes, they should rent. Otherwise, they’ll be taking loans and defaulting. We know how that story ends. If, however, the purpose of this plan is to stimulate the economy through home-building, why put an income cap?

Question 11:

Q. I read that the tax credit is “refundable.” What does that mean?
A. The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

A tax credit is a credit against taxes paid or payable. If taxes aren’t being paid, and the credit is still given, it’s not a tax credit. It’s a check for $8,000. Call this what it is.

Question 16:

Q. I am not a U.S. citizen. Can I claim the tax credit?
A. Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

Sure, why not, it’s a free for all! This adds a little more support to the idea that it isn’t about putting people in homes, it’s about boosting the home-builders. Accordingly, the salary cap should be removed. (Again, I don’t believe this tax credit will work, but to be consistent with the idea behind the program, this is what should be done)

Question 17:

Q. Is a tax credit the same as a tax deduction?
A. No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

It is true that a tax credit is not the same as a tax deduction. However, the First Time Home-Buyer “Tax-Credit” is not a dollar-for-dollar reduction of what the taxpayer owes. See question 11. Regardless of what a taxpayer owes, it’s an $8,000 check.

Question 21:

Q. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
A. Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008.

It’s not like the government follows Generally Accepted Accounting Principles (GAAP) anyway. It doesn’t matter when the home is bought, just do whatever gets the most money.

Question 22:

Q.For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
A. Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

In case we didn’t answer this well enough in the previous question. Yes, it’s true, we don’t follow GAAP. If we did, our federal debt wouldn’t be 10 trillion, it would be $65.5 trillion. Oh, and that’s before all of the money we spent this year.

The rule seems to be, that if a group is productive, they follow GAAP. If the group is the government or certain recipients of government aid, they follow whatever works best.

I can’t wait to see what they come up with next!

Tags: Politics, Taxes