If the price of a good is too high, and supply increases, the price of the good will decrease to lower the supply. If the price doesn’t decrease fast enough, government will force it down.

Enter First-Time Home Buyer Tax Credit

Ignoring Bastiat’s That Which is Seen, and That Which is Not Seen and the broken window fallacy. Ignoring time preference and the expediting of future goods to increase immediate demand with disregard for future demand.

The first-time home buyer tax credit seems like a great idea.

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

This should read:

The American Recovery Theft and Reinvestment Destruction Act of 2009 authorizes a tax credit the theft of up to $8,000 for qualified first-time home buyers anybody who’s salary is low enough and has not owned a principal residence for three years who plans on purchasing a principal residence on or after January 1, 2009 and before December 1, 2009 on into the future.

Let’s read the FAQs.
Some of these FAQs have been shortened.

Question 2:

Q. What is the definition of a first-time home buyer?
A. The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase.

No, a first time home-buyer isn’t somebody who is buying a home for the first time. It’s just somebody who hasn’t bought a home in a few years.

Question 4:

Q. Are there any income limits for claiming the tax credit?
A. Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return.

This isn’t a problem with the FAQ, more with the program. Is the purpose to put people in homes or to stimulate the economy (Although it won’t work either way)? If the purpose is to put people into homes, then this would stimulate another unsustainable housing boom. If the people can’t afford homes, they should rent. Otherwise, they’ll be taking loans and defaulting. We know how that story ends. If, however, the purpose of this plan is to stimulate the economy through home-building, why put an income cap?

Question 11:

Q. I read that the tax credit is “refundable.” What does that mean?
A. The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

A tax credit is a credit against taxes paid or payable. If taxes aren’t being paid, and the credit is still given, it’s not a tax credit. It’s a check for $8,000. Call this what it is.

Question 16:

Q. I am not a U.S. citizen. Can I claim the tax credit?
A. Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

Sure, why not, it’s a free for all! This adds a little more support to the idea that it isn’t about putting people in homes, it’s about boosting the home-builders. Accordingly, the salary cap should be removed. (Again, I don’t believe this tax credit will work, but to be consistent with the idea behind the program, this is what should be done)

Question 17:

Q. Is a tax credit the same as a tax deduction?
A. No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

It is true that a tax credit is not the same as a tax deduction. However, the First Time Home-Buyer “Tax-Credit” is not a dollar-for-dollar reduction of what the taxpayer owes. See question 11. Regardless of what a taxpayer owes, it’s an $8,000 check.

Question 21:

Q. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
A. Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008.

It’s not like the government follows Generally Accepted Accounting Principles (GAAP) anyway. It doesn’t matter when the home is bought, just do whatever gets the most money.

Question 22:

Q.For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
A. Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

In case we didn’t answer this well enough in the previous question. Yes, it’s true, we don’t follow GAAP. If we did, our federal debt wouldn’t be 10 trillion, it would be $65.5 trillion. Oh, and that’s before all of the money we spent this year.

The rule seems to be, that if a group is productive, they follow GAAP. If the group is the government or certain recipients of government aid, they follow whatever works best.

I can’t wait to see what they come up with next!

Tags: Politics, Taxes

Five Obama appointees incorrectly filed their taxes. Ironically, none of these errors were in the form of an overpayment. They never are.

There are two possibilities. Either these appointees intentionally underpaid their taxes, or they accidentally misfiled them.

• Tim Geithner – January 14, 2009 – Treasury Secretary – $42,702
• Tom Daschle – January 30, 2009 – Secretary of Health and Human Services – $140,167
• Nancy Killefer – February 3, 2009 – Chief Performance Officer – $946.69
• Ron Kirk – March 2, 2009 – Chief Trade Representative – $9,975
• Kathleen Sebelius – March 3, 2009 – Secretary of Health and Human Services – $7,918

I’m going to take the high road and assume that all five tax problems were accidental. However, these are smart, college-educated professionals and politicians. They should be able to understand the tax code. Not only were they unable to understand it, like most government documents, they wouldn’t even be able to read the whole thing. According to Florida Congressman Connie Mack, “Our current tax code is over 17,000 pages long and over 60% of Americans pay someone else to do their taxes for them.” According to Virginia Congressman Bob Goodlatte, “The tax law has grown from 11,400 words in 1914, to seven million words today.” Congressman Goodlatte has also claimed that, “American taxpayers spend $200 billion and 5.4 billion hours working to comply with federal taxes each year, more than it takes to produce every car, truck, and van in the US.”

There is something wrong with this system.

While many of these tax filing errors were likely mistakes (especially Ms. Killefer and Ms. Sebelius), they happened nonetheless. Between these five appointees, there were twelve problems filing taxes. I believe that the underlying issue isn’t dishonesty, but an overly complicated tax system. If the same people who oversee the tax code can’t understand and comply with it, there’s a problem. It’s time to reform the tax code.

Tim Geithner
Tim Geithner was selected to be Treasury Secretary of the United States, a position that includes overseeing the bloated beast itself, the IRS. It was quickly discovered that Mr. Geithner owed $42,702 in back taxes for various reasons including:

• Failure to pay Social Security and Medicare taxes while employed by the International Monetary Fund
• Illegally claiming that his children’s summer camp was a dependent care expense
• Employing an individual who lacked legal immigration status
  

Tom Daschle
Tom Daschle was considered for Secretary of Health and Human Services until it was discovered that he owed $140,167 in taxes. Mr. Daschle’s offenses include:

• Failure to declare a limousine and chauffeur as taxable benefits (over $250,000 worth)
• Undeclared income ($83,333) from InterMedia Partners earned in 2007
• Declaring tax deductions of $14,963 for unapproved charitable organizations
  

Nancy Killefer
Nancy Killefer was considered for Chief Performance Officer before her past tax complications were unearthed. Although Ms. Killefer had already resolved her $946.69 tax problem, she joined the list of Obama appointees who withdrew their candidacy due to tax issues. Ms. Killefer’s offence was:

• Failure to pay unemployment compensation to an employee in 2005

Ron Kirk
Ron Kirk was selected as United States Trade Representative on March 18 despite his $9,975 tax issue. Mr. Kirk’s offences include:

• Failure to declare compensation for speeches worth $37,750
• Illegally declaring three seasons of Dallas Mavericks season tickets as qualifying entertainment expenses (without completing the required documentation)
  

Kathleen Sebelius
Kathleen Sebelius was the second appointee for Secretary of Health and Human Services to have tax problems. Ms. Sebelius’s back taxes amounted to $7,918 for offenses including:

• Declaring three charitable contributions without receiving proper documentation
• Filing mortgage interest deductions after selling a home
• Declaring business expenses without having sufficient documentation
  

Tags: Politics, Taxes