When it was first being debated, we here at The Wonk Room pointed out that the credit is poorly targeted and doesn’t do much to incentivize home purchasing that wouldn’t have happened anyway. But instead of acknowledging these problems, Sen. Johnny Isakson (R-GA) wants to not only reauthorize the credit, but double it, remove the income cap, and make buyers who already own a home eligible for it:
“I’m working the floor now to make everyone aware that the $8,000 credit sunsets on Nov. 30,” Isakson, a Georgia Republican, said in an interview today. The former real estate executive, says he is “talking to everybody and anybody”…Isakson’s legislation would extend the program through the end of 2010, almost double the credit to $15,000 and remove restrictions that prohibit individuals who already own homes or earn $75,000 — $150,000 for couples — from getting the tax break.
Isakson, who professes great concerns about the deficit the rest of the time, is advocating a needlessly expensive gift to the real estate industry, dressed up as an economic recovery aid. This credit has already cost $15 billion, which is more than twice its original estimates. Calculated Risk found that this broke down to $43,000 per additional buyer, which would increase to $30 billion, or approximately $60,000 per additional buyer, if the credit were expanded and extended.
The reason that the credit costs so much per additional house sold is because most people claiming it would have bought their house anyway. By the National Association of Realtors’ own admission, 1.8 to 2 million credits will result in only 350,000 additional sales that would not have taken place without the credit. And by removing the income cap, that incentive is reduced even further, as its unlikely that the money would push the super-rich into purchasing houses that they otherwise wouldn’t have, but they can claim the credit anyway.
Also, since Isakson’s plan opens the credit up to people who already own homes, many of the credits will be dispersed without resulting in the net purchase of a home, as people will be simply leaving one home for another. Finally, it will likely lead to unnecessarily propped up home prices, as people spend more on homes than they otherwise would have — and we all saw the effect that artificially inflated home prices can have on the economy.
In the end, extending the credit would amount to nothing more than a boon for the real estate industry, at the federal government’s expense. And with that in mind, it should come as no surprise that the real estate industry is far and away Isakson’s largest donor.