When is a Tax Credit a Bad Idea?

We here at MasterPlan Capital generally love tax cuts, tax breaks and tax credits of all sorts, but we are Leary of the government’s proposal to offer a $15,000.00 tax credit to all home buyers.  

First of all it’s a big break to homebuyers at the expense of everyone else. Why should renters and other tax paying citizens who happen to be out of the residential real estate market subsidize other people’s American dream? Why should you or I be forced to help a stranger pay for his house?

Redistribution schemes don’t work because although Paul gets paid, Peter gets robbed. The result is, at best, a wash to the overall economy.

 Secondly, it’s artificial manipulation of the market. The housing market needs to find its true bottom; meaningful recovery can not happen until it does. Paying people $15k to buy houses will certainly increase demand, but the market will respond to that demand with price increases until it equalizes. The equilibrium, however, will be false and the market will be subject to devaluation when the tax credit is taken away.    

It is not the mandate of the US Government to favor one class of people (homebuyers) over another class (renters, single people, retired people, students) and government intervention always has unintended consequences; bad ones.

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MasterPlan Capital; Commercial Mortgage Loans

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