Tax Credit? Will it Stimulate the Economy or is it a Temporary Fix?

The new version of the Tax Credit has been released and is expected to be signed into law as soon as today. This tax credit will give first time home-buyers up to $8,000 as  credit when they file their taxes. The newest version does not require the credit to be repaid. The first time home-buyer would have to purchase the home prior to December 1st of 2009.  If the buyer sells the home within the first three years they would be required to repay it.

Here are the  list of my concerns:

1) The goal is too give a credit to those who get off the fence and jump into a hurting housing market.  So, we put a time limit on the consumer forcing them to make the largest financial decision some may make before they are truly ready so that they can get free money?

2) The credit is designed to give the consumer money they will turnaround and spend in the struggling retail industry to help Stimulate the Economy.  Like a well designed gift card consumers rarely spend only the amount they are given. So what account pays the overage. A credit card? 0% interest for a year at Home Depot?

3) Once the time-line is over and the government sees that the overall effect was very little and all they did was help to add debt to a debt driven society what will they do extend the time-line. There are several homeowners who will make it in the time that is allotted for the tax credit but there will be several who won’t. Many of those that make it in time will have rushed just for the free money and may put themselves at financial risk (have it now society). Then we will extend the time-line for those that just did not make it so we can capture the others that felt like they missed their opportunity restarting the cycle.

4) If the debt does not have to be repaid then where is the money coming from and who is going to pay for it? There is no telling on this. The money will come from somewhere and the repayment is spending this money in the retail market and acquiring more debt hoping to stabilize companies that are on the verge of bankruptcy. The question is once the money is spent and we return to reality where many are struggling to make it spending will decrease and the companies will return quickly to where they were.

Overall, I like that there are plans out there to help jump-start our economy. As a Mortgage Broker I am excited that my home-buyers may have funds to reestablish reserves post purchase. If that is where they place the funds and they do not spend them in the retail market then the plan is a failure? If they save the funds then we gave them free money to sit on. This would not accomplish the goal but would be wise for the buyer. The Tax Credit reminds me of a heart being restarted by a defibrillator. The heart is jump-started back into action but only temporarily if the actual problem is not found and treated. The Stimulus Bill is a temporary fix or a delay while we dig for a cure. If the liver is the problem we can jump-start the heart all we want but in the end when the liver fails our body shuts down. In the end we are providing a stimulus package that is leading to impulse purchase, rush decisions and poor fiscal responsibility. Sound Familiar. Isn’t that what got us where we are at?

Solution: Come back for the next blog entry on the solution. Why teaching fiscal responsibility is a bad thing for the economy!


1 Response to “Tax Credit? Will it Stimulate the Economy or is it a Temporary Fix?”

  1. 1 mattfreeman February 16, 2009 at 3:57 pm

    Is this how I make a comment on my own post?

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