Washington wrangles over home buyer tax credit

With the November 30 expiration of the First-Time Home Buyer Tax Credit fast approaching, the wrangling in Washington over whether to extend the program is getting mighty interesting.

In early September, Senator Johnny Isakson, the patron saint of the National Association of Realtors (and a guy who made his fortune selling real estate) teamed up with Senator Christopher Dodd to back a plan that would increase the current $8,000 credit to $15,000, make it available to all homeowners (not just first timers), and double the income-eligibility rules.

By last week Senator Isakson had reined in his proposal a bit, settling (for the moment at least) on an $8,000 credit through June 2010. But the provision to make the credit available to existing homeowners is still on the table, as is doubling the income limits to $150,000 for individuals and $300,000 for married couples.

The smoke signals out of the White House suggest some concern about more government spending. HUD Secretary Shaun Donovan told a Senate hearing last week that while the current credit has obviously helped the housing market, the Administration wanted to carefully weigh the costs and benefits of extending the home buyer tax credit.

Isakson better hope the White House doesn’t carefully read a Brookings Institution smackdown of the home buyer tax Credit cost-benefit. Brookings’ Ted Geyer estimates that about 85 percent of people who are expected to use the 2009 homebuyer credit would have bought anyway, and the taxpayer cost to generate additional home sales works out to a hefty government subsidy of $43,000 per sale.

If the credit does see the light of day into 2010, let’s hope oversight is tightened a bit. The IRS reported last week that it is pursuing more than 100,000 cases of potential fraud, including one case of a four-year-old claiming the credit.