"promising that only this will now save the housing market."

Remember this post ( I realize this is for Patty ):

"Tuesday, November 11, 2008

" For a limited time, say up to the end of 2009"

Via Greg Mankiw, a proposal I had thought about:

"Carnegie-Mellon economist Allan Meltzer wants to prop up housing demand:
To address the housing problem, Congress and the administration should take actions that increase the current demand for housing. For a limited time, say up to the end of 2009, allow buyers to use the value of their down-payment (or some part of it) as a tax deduction. Or, reduce the tax rate for qualified buyers who purchase a house between now and January 2010. Or do both. Give the benefit to all home buyers, including those buying a second or third house."

My concern. It will be hellish to get rid of. Pretty soon, all housing payments will be completely deductible.

Now, here's why, from Gerald Prante:

The National Association of Realtors, our favorite lobby here at the Tax Foundation, is pressuring its members to urge Congress to steal on its behalf more from taxpayers. Here's the organization's four-point plan:

NAR has urged Congress to include the following provisions in any future legislation:

• Make the $7500 tax credit available to all purchasers and eliminate the repayment requirement. The credit’s limited availability and required repayment terms have severely limited the credit’s appeal to potential homebuyers. As a result, the credit has not been widely used or proven effective at stimulating sales.
• Make the 2008 FHA, Fannie Mae and Freddie Mac loan limits permanent. New rules for 2009 would significantly reduce the FHA, Fannie Mae and Freddie Mac loan limit from their 2008 levels. Now is not the time to limit the availability of affordable mortgages.
• Get the Emergency Treasury bank relief program back on track by targeting more funds to mortgage relief efforts and increasing efforts to mitigate foreclosures. Don't just give the banks unrestricted cash. Make the program work to improve mortgage and housing markets as it was originally intended.
• Permanently bar banks and banking conglomerates from engaging in real estate brokerage and management. The banks have proven they have enough to do to simply properly manage their current lines of business. Do we really want them to manage on the home buying process? Imagine what could have been the situation now if they already had the added ability to engage in real estate sales.

Of course, back when the first time homebuyer credit was put into place, the Realtors said it would be a boom to the market. Of course, they've been wrong (as has been typical of the organization for about the past five years on just about everything), and now they want more, promising that only this will now save the housing market.

Congress should tell the NAR and its lobbyists to just go home (if they still have one).

Pretty clear.

"I could come up with a pretty good list of tax rate cuts financed by spending cuts that would increase economic growth."

A very succinct and potent discussion of the connection between cutting taxes and economic growth by Gerald Prante on the Tax Policy Blog:

"If Bernstein's standard for "high" economic growth is that a tax cut pay for itself, I would agree that no major tax rate cut at today's tax levels is going to promote that much of economic growth. (I'm referring to major federal taxes, as I'm sure there is somewhere out there in a state that lower tax rates would pay for itself...say on a cigarette tax or something where there is huge border activity. Also if you consider certain prohibitions to be implicit taxes, repealing them and in effect cutting tax rates would pay for themselves.)

But Bernstein's position seems to be like many on the left, which is a lexicographic preference for government always getting bigger, and he's trying to act as if it's a free lunch. It's very similar to the view of those on the right who say that government is a waste and should be starved of all revenue. The fact of the matter is that the optimal size of government > 0, but it's optimal size is not 100 percent of the economy (and there would be substantially lower economic growth if that was the case).

There are some government spending items currently in existence that are not worth their costs to taxpayers. Then again, there are some hypothetical government spending items that do not exists right now that would be worth additional tax dollars. The secret is finding which spending items are worth their costs and only funding those, and raising the necessary revenue in the best possible way that meets various criteria (such as equity and efficiency).

It is one of the paradoxes for those who seek to rally support for starving the beast (even if it worked say at the state level under a balanced budget rule). You are starving a beast because you view the beast as too wasteful and not looking out for the best interest of the taxpayer. But whose to say that when you starve it, it's going to devote its now more limited resources to the best interest of the taxpayers. It may starve you in return of the services you and those who you seek to garner support from value most (since you already believe that it doesn't look out for your own interests), thereby not getting rid of the programs at the margin that aren't worth their costs to taxpayers but instead getting rid of the programs that are worth their costs."

Any tax must be looked at and judged by the conditions of the economy, what the money is needed for, the level of debt, etc. Even if you believe in limited government, there is no getting away from analyzing the effects of particular taxes and whether or not they are worth it, even to you. In our complicated economy, it's a hellishly hard thing to do, but there's no way around it. There's not even an easy way to judge simplifying taxes or tax rates, without discussing what you need the money for, and whether the simplification gets you to where you want to go.

Any tax or government expenditure needs to be examined on its own.

Campaign Ads Are Misleading

I guess I could pay more attention to stories like this:

"Latest Obama Ad on Taxes Contains Half-Truths, Misleading Claims

Posted on October 11, 2008 by Gerald Prante

Barack Obama's latest ad on the issue of taxes makes many claims about his own tax plan and that of John McCain that stretch the truth and mislead voters."

Except that:

"I guess this shouldn't surprise us. Neither the Obama campaign nor the McCain campaign really cares about being honest with the voter. They just tell you the voter what sounds good, regardless if it's true or not."

Which is why I don't.