Cash For Colonials!!

So, let me see if I have this right….the government contributed $4000 towards the purchase of a new car with NO income restrictions. Anyone, regardless of salary or savings, who had a defined “clunker” was eligible for this subsidy… and it was basically delivered “on the spot.” Although the dealer was responsible for filing the paperwork for reimbursement of the clunker credit, the car buyer simply paid $4000 less for his purchase.

Sure, the Cash for Clunkers program had a limited life span – but in the end 700,000 people were able to take advantage of this wildly successful offer which cost the taxpayers just under $3 billion. Was it a good thing? I’d argue that it was. But I’d also argue that there are other parts of the economy that need a similar boost…not the least of which is the housing sector.

The same economic incentive package that contained the Cash for Clunkers program also contained the wildly debated First Time Home Buyer Tax Credit. But, unlike the program for car buyers that provided what amounted to as much as a 25% discount, the home buyer credit is much less generous and comes with a laundry list regulations and restrictions. For example, in order to qualify for this $8000 housing tax credit:

1. You have to be a first time home buyer (defined as someone who has not owned a principal residence for the last three years)
2. You must purchase between January 1, 2009 and December 1, 2009
3. In order to qualify for the full $8,000 credit, you must purchase a home that costs at least $80,000
4. There are income limits ($75,000 for single buyers for the full credit – phased out entirely at an annual income of $95,000 and $150,000 for married taxpayers for the full credit – phased out entirely for married couples at $170,000)….Remember that people well above these income amounts could have taken advantage of the Cash for Clunkers Program
5. The $8,000 credit is a tax credit and not a tax deduction… unlike the Cash for Clunkers program where the buyer immediately saw the benefits of the program, home buyers will have to wait until they file their income taxes to begin the process for receiving the credit.

Again, I would argue that this program has been a great benefit to the housing market…but certainly a greater benefit in some parts of the county than in others. In the the "Close-in" DC Metropolitan Area, I find that most of the people I work with are ineligible either because of income limits or because of previous home ownership…neither of which I believe should have been incorporated into this credit. If income limits were going to be imposed, I think they should have been imposed on a “cost per living” basis – much like the FHA maximum loan limits – instead of an “across the board” salary cap. I don’t think anyone believes that a single person making $75,000 in Omaha has the same standard of living as the single person making a similar salary in New York City.

Congress now has to decide whether or not to continue this program. With recent reports of increasing foreclosures because of job losses, it looks like the housing inventory is destined to continue to grow.   We need buyers for these houses…the same way that car manufacturers needed buyers for their automobiles.  We need more "Cash For Colonials"!!

Thoughts?

Contributing Writer - Gretchen Koitz

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