Congress votes to extend economically foolish, politically wise policy

Victor Joecks

Yesterday the House voted 403-12 to extend the first-time homeowner tax credit through the middle of next year. Two days ago the Senate voted 98-0 for the same package, and President Obama is almost certainly going to sign it into law soon.

Despite evidence that this tax-credit program had a minimal effect on boosting home sales – because most went to buyers who would have bought homes anyway – the bill passed with overwhelming support.

Why? Because this bill allows politicians to go back to their constituents and claim they were doing something about the housing “crisis.” They were seeking to raise housing prices for the millions of homeowners who are currently underwater in their mortgages. They care about the hurting.

Never mind that politicians’ “compassion” is going to cost us and our children billions of dollars.

Never mind that government policies enabled and contributed to the housing bubble in the first place. Our politicians are eager to “solve” this current problem in the short term, even if it means greater pain in the long term.

Even if it’s by using tax credits, government shouldn’t choose the winners and losers in an economy. Targeted tax credits and tax breaks are just as destructive as subsidies, because they provide false information about how valuable a product or service is, which leads to less wealth. (If that last sentence didn’t make sense to you, I urge you to read this piece on how money acts as a signal in the market place to direct limited resources to their most productive ends.)

Government should provide a uniformly low tax and regulatory burden and let individuals live their lives and face the consequences (good or bad) of their own decisions. As we’ve seen with Cash for Clunkers, money for first-time homeowners, and scores of other government programs, history shows government programs make things worse, not better, in the long run.