Exhibit A:
A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.
put another way:
The government could have done almost as well by just giving away cars for free, instead of creating an elaborate incentive program
Ted Gayer, a scholar at the liberal Brookings Institution, argued in a recent paper that the credit costs the government about $43,000 for each additional home sale it produces. That is because most [~85%] of the two million or so home buyers expected to claim the credit would have bought a house anyway. Only about 350,000 were additional buyers. Expanding the credit to make all home buyers potentially eligible would swell the government's cost per additional home sale to more than $250,000, said Mr. Gayer, co-director of economic studies at Brookings.Economists at the National Association of Realtors said they don't disagree with Mr. Gayer's analysis of the existing credit's cost to the government. But they said he plays down the impact the program is having in supporting home prices and related expenditures.
What? Seriously, what? OK, two things. First, extending or expanding the program to the point where the government is paying any where close to $250,000 per additional home sale could never happen, could it? Oh, #@(&!$. But at least there is no additional fraud, right? #@(*&!$-ity #@(*&!$. Second, the economists for the NAR want to play up how the program is propping up house values that could not exist without government chicanery. Just as during the run up to this mess, everyone wants to prolong the inevitable as long as possible, but eventually prices will have to adjust to where supply meets demand.
Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama's stimulus plan, Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart.
The federal credit provides from $4,200 to $5,500 for the purchase of an electric vehicle, and when it is combined with similar incentive plans in many states the tax credits can pay for nearly the entire cost of a golf cart... "The purchase of some models could be absolutely free," Roger Gaddis of Ada Electric Cars in Oklahoma said earlier this year. "Is that about the coolest thing you've ever heard?"
In South Carolina, sales of these carts have been soaring as dealerships alert customers to Uncle Sam's giveaway. "The Golf Cart Man" in the Villages of Lady Lake, Florida is running a banner online ad that declares: "GET A FREE GOLF CART. Or make $2,000 doing absolutely nothing!"
Golf Cart Man is referring to his offer in which you can buy the cart for $8,000, get a $5,300 tax credit off your 2009 income tax, lease it back for $100 a month for 27 months, at which point Golf Cart Man will buy back the cart for $2,000. "This means you own a free Golf Cart or made $2,000 cash doing absolutely nothing!!!" You can't blame a guy for exploiting loopholes that Congress offers.
This is so sad it is actually cool. I mean, forget for a moment the fact that millions of people go to work and have a significant portion of their income go to taxes so that brilliant politicians can spend money on these wonderful government incentives. Forget that Americans will have to pay for all this stimulus either through taxes, inflation, or a burdened economy. We are talking about free golf carts!
10 comments:
OK Alex,
Now you have gotten in my craw.
Let me clear something up, as a realtor. The NAR of which I am a member, understands as I do, that the government will lose some money with these tax credits. It is not costing the government anything. It is a tax break! Thats it, just a reduction in the amount of money the government will get from home buyers anyway. It is a reduction in passive income for the government (which by the way, as you so eloquently showed, the government is very responsible with this money.
I support any tax cut...all tax cuts at any level. I especially support tax cuts in the real estate industry. Why? Did you know that you are triple sometimes quadruple taxed on homes? It is unconstitutional in my opinion. Heck with cap and trade you might get taxed a fifth time.
You pay taxes when you buy a home, when you sell a home, your property taxes, and you pay taxes on any profit you make on the home! If cap and trade passes you will pay taxes to heat and cool your home!
And Alex, you have a problem with an $8,000 tax credit for home owners? Come on. You sir, are on the wrong side of this one my friend.
I am glad I am in your craw, because you are wrong. The $8,000 is a check the government sends out REGARDLESS of how much, if any, taxes one has paid in the past. That is not a break, but a handout. It has been prone to widespread fraud and abuse, and so the government decides to not only continue but expand the program.
Look, I get your point of view. It is good for your business, right now at least. I have other realtors telling me that "1st time buyers" are 80% of their business. And if these people foreclose down the road, that's no skin off your commission check.
But the laws of supply, demand, and finance can not be suspended by government or realtors. This program is accomplishing 4 things:
#1) Shifting the demand curve forward. More sales now only means less sales in the future once the incentives stop. 85% of the people who have bought a house under this program would have bought in the next couple of years anyway. So while you may be getting 2-3 years of sales compressed into the span of months, I would be stashing that commission money away for lean times ahead.
#2) Temporarily stop falling prices. Notice I said temporarily. When you have 2-3 years of buyers competing for the same pool of houses at the same time, the homes can sell with less discounting. While this sounds good, in the long term there remains nothing (outside government intervention) to sustain prices at the current level once the financial incentives stop, the swollen buyer pool is gone, and foreclosures & housing stock resume their growth.
#3) Ensure continued problems with foreclosures. Not every one can afford to own a home. Yet if the buyers are given free government money to own one, what's the harm in trying, right? $8K, at the end of the day, is not going to do much to pay a $176k house over 30 years. Government subsidizing and intervention is a good bit of what got the housing market in the mess it is, and yet that is exactly what this program continues.
#4) Redistribute wealth. Since the people getting "rebates" did not actually have to pay any taxes, it most certainly is costing every single person who actually pays taxes, now and in the years to come.
Now, if you want to talk about universal tax policies, and if they are too high and low, that is an entirely different conversation. But I am against gov't incentives that picks winners and losers. This includes being against (even as a homeowner) the mortgage interest deduction. The whole idea of our country is that we should all be equal under the law, not partitioned out and influenced or persuaded by it.
I have no comment at this time, but am posting so that I can get notifications on the discussion.
By the way, the word verification is pednag. Can they call it word verification if it isn't really a word?
Ok Justus,
You are wrong, partially. According to IRS.GOV the tax credit is actually a credit.
"The credit reduces the taxpayer’s tax bill or increases his or her refund, dollar for dollar. Unlike most tax credits, the first-time homebuyer credit is fully refundable. This means that the credit will be paid to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed."
If you owe say 9,000 in taxes...then your tax responsability is only 1,000. If you owe less than 8,000 then yes you get money in the form of a tax refund.
It is not free money...you have to pay it back! As an interest free loan.
Doesn't matter though. I do agree with you that, and I am paraphrasing a mixture of what I think are your thoughts with mine, the government should just stay away from real estate markets all together.
By the way, my business is made up of less that 10% first time home buyers...I sell mostly resales.
And, I also find it troublesome that you seem to view real estate commissions through gritted teeth. Why is that?
You see...as I laid out before...homeowners are taxed far more than 8,000 per year. The tax burden for a homeowner in tallahassee on a 200K home will be roughly 4,000 at purchase...3,500 property taxes yearly...4,000 at sale...and over 30% of any profit they make! So a one time...one time dude...tax credit of 8,000 is absolutely nothing more than a tax decrease. Which I support wholeheartedly.
Oh, and you grossly over state the impact that the tax credit has on the market. Housing prices are stablizing as a market trend. A market trend only. These "stimuli" only slightly affect that.
The only way government can screw this up again is if they decrease lending standards again.
TJ...dedrin was my word...I think it is a reference to our defense.
Lumbee,
I have no problem with commissions. I am in commission-only sales myself. The one difference I would only note, and I have no alternative to propose, is that in most professions commissions are contingent on the profitability, success, and/or length of the deal. For instance, I am paid only on once full payment is made on a sale, and my exact payment depends on how profitable the job was. Also, I know that returned commissions are part of the insurance industry. Is there anything along these lines in real estate?
As for all the taxes involved in buying or selling a home, that is not my area of expertise, but my understanding is that, for the typical single home buyer, there is no sales tax, and that taxes to any profit in a sale, and even then at the capital gains rate instead of the standard income tax rates. I understand that if buying a new home, the sales tax paid on building materials would be reflected in the price, but that is not federal taxes, and only on new home purchases. Please correct me if I am missing something.
Finally, I am not saying that this program is the only reason prices have rebounded lately. Prices are certainly a long way from their peak in most areas, so they may be nearing true market value. What I am saying is that there this program is causing some price distortion, and that prices would have fallen further faster absent this program.
In the previous comment I meant to say that "taxes are limited to any profit in a sale." Sorry for the missing words.
Commissions in real estate are paid once the transaction has consummated in full. Once all monies have changed hands and all property has been transferred. The success of the deal is paramount. If the deal falls apart at the closing table, we don't get paid. As most real estate transactions take 2 months or more to close once an executed contract is acheived, and each closing from this point requires roughly 80 work hours, I beleive the commission is well earned. Notice this is all from the execution of the contract.
"Length of sale" applies to real estate differently than insurance as the transaction occurs only once and there is no maintenence to it. However, you won't stay in real estate for long if you don't maintain that relationship. Reminders for taxes...insurance updates...kids birthdays..etc.
Now there are some bad apples that make us look bad...but alas, I am studying for my insurance license currently and it seems that the case is true for both professions.
This program may very well cause slight distortions in some sub markets. However, largely, the market is moving freely without extra market influence. Rest assured. The seeming settling of the market, (Resales increased by more than 9% last quarter) is real not manufactured. Will it fall again? YES...will it go up....YES
Buy low...sell high. It's the American way.
I thought the American way was just buy, buy, buy, and try to figure out a way to pay later.
As to the tax credit or break whichever it is, I don't know. I haven't followed it that closely. I would say that if the point of it was for the government to "help" the market or to increase sales, it is a failure. If you aren't planning on buying a house, I doubt that made a difference. If someone is only $8,000 away from affording a house I say one of three things should happen. Buy a smaller house. Negotiate better. Don't buy it until you save $8,000 more dollars.
Dude, where can I get one of those free golf carts? Have you ever driven a golf cart? Its only like the funnest thing ever. Thank you in advance providing your tax dollars so that I can flip one over on the steep, steep streets in my neighborhood.
Hey that sounds like fun. Can I come?
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