Monday, October 5, 2009

"We Agree on Tax Credit"

"We Agree on Tax Credit" (exerpts)
- Bruce Krasting

There was a love fest on ABC’s This Week. The odd couple was Senators Schumer (D.NY) and Cornyn (R.TX). When Schumer says, ”We have to extend the housing tax credit” Cornyn says, “Chuck and I agree”.
Cornyn went on to make a plug for Senator Isakson’s (R.GA.) bill. This would expand the $8,000 tax credit to $15,000. It would also make it available to all comers. The existing bill is only for first time buyers...

The clip is here. The discussion on the tax credit is at -9.55.

Read this to mean that it is certain that the existing subsidy will be extended. In my view these two making nice on TV means that a form of the Isakson bill is what we are going to get. This is a very significant development.

For the sake of discussion assume we do get a $15k credit... The question is how many will take advantage of this and what might be the consequences.

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This program will have the same effect as the Clunkers program. While the window is open that stimulus is powerful. The existing housing tax credit has been very successful. It is reasonable to assume that a larger, broader program would also bring results.

But as with Clunkers, when the music stops demand stops as well. Given the magnitude of this potential bill the impacts would be very substantial when the program is ended. There will be a great sucking noise in the months that follow the end of this and the other ‘fixes’. We will not QE ourselves out of that one. The sucking noise will be heard around the world.

read the entire Krasting analysis on the effect of this tax credit...

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