Friday, Oct. 30
Written 9:45 a.m. EST
AS EFFECTIVE AS TAP WATER: Al Heavens, the hardest-working man in journalism, reports that the Senate has reached a compromise to extend the homebuyer tax credit. The proposal would extend it in two ways: by delaying the tax credit's expiration from Nov. 30 to June 30, 2010, and by giving the credit to a limited subset of homebuyers who aren't first-timers.
First-time buyers still would be eligible for a refundable tax credit of up to $8,000. Some current homeowners (those who have lived in their current home for five consecutive years during the last eight years) would be eligible for a refundable tax credit of up to $6,500 when they buy another principal residence.
That's the Senate version. It would have to be reconciled with whatever comes out of the House, so changes to the Senate version are almost inevitable. And there's the possibility that Congress will allow the tax credit to expire at the end of November and take no further action.
The Obama administration's secretaries of the Treasury and of Housing told Congress yesterday that they support an extension of the tax credit, without giving specifics of exactly what they're looking for.
I'm doubtful about the tax credit. At a time when we should be encouraging people to rent, we're giving tax breaks for people to borrow money to buy houses. And I'm not sure the tax credit is effective, anyway. Does it spur people to buy houses now, when they otherwise would have saved a bit more money and bought a year from now, when they would be better prepared to own? Are we merely moving next year's sales to this year, as Cash for Clunkers did?
Now that we're handing out tax credits willy-nilly, we've created a situation in which we're afraid of the withdrawal symptoms. Realtors, bankers and some economists fret about the consequences of quitting the tax credit cold turkey at the end of November.
This situation reminds me of when I was in a drug-abuse program in high school, and one Saturday I helped a heroin addict move into an apartment. She was going through withdrawal, and I walked into the apartment carrying a box. I looked up and she was sitting at the top of the stairs, with an eyedropper stuck in her arm. She was shooting tap water into her vein. Shooting up felt good, she said, even though plain water didn't do anything. That's what extending the tax credit would do. It would make lawmakers and Realtors and bankers feel good briefly, but would have little effect.