It’s almost a daily occurrence. Another government program. Another report of inefficient and incompetent use of federal funds.
Today’s story comes to us from the Associated Press. The AP reported on Wednesday that more than 1,200 prison inmates wrongly received more than $9 million in homebuyer tax credits. Every single prisoner who received the credit is serving a life sentence.
According to a government investigation, more than 14,000 taxpayers erroneously received $26.7 million in first-time homebuyer credits. And that’s not all. The report revealed that some taxpayers received the tax credit before the credit was started, and multiple taxpayers improperly used the same home to claim multiple credits. In one example, 67 taxpayers claimed the tax credit on a single home.
Congress created the popular first-time homebuyers tax credit in 2008.
Initially the program provided an up to $7,500 interest-free loan that had to be repaid over 15 years. The credit was expanded and the repayment requirement was dropped in favor of an $8,000 tax credit. The program was expanded to offer a $6,500 tax credit to long-time homeowners who bought new homes. The program is set to expire at the end of this month – to be eligible homebuyers had to sign purchase agreements by April 30 and close by June 30 – but there is talk in Congress of extending the program deadline through Sept. 30.
Maybe Congress should hold their horses on that idea. Although the program was wildly popular – especially with prisoners – it’s simply another form of redistributing the wealth. That $8,000 tax credit has to come from somewhere, and as of now, it’s coming straight from the pockets of American workers who aren’t in a position to be eligible for the credit or to buy a new home.
The program did create a sharp spike in home sales, however now that the program is in its waning day, home sales are dropping off a cliff. It’s almost as if the program created a home-buying house of cards. When the bottom card in the form of a tax credit is removed, the whole house comes crashing down.
That’s what likely will happen to the real estate market.
New home sales dropped off a cliff in May – down more than 33 percent. Sales of existing homes also dipped in May. The National Association of Realtors showed a 2.2 percent decline.
Maybe it’s time for Congress to simply take itself and its programs right out of the market. That will allow sales to stabilize and the capitalist market to work out the kinks. And it’ll keep the U.S. from spending a bunch of money it doesn’t have on an ill-run program the country can’t afford.