Tuesday, October 20, 2009

White House showing restraint on tax credit?

Wow, I'm surprised that someone in Washington is showing a little backbone with regard to the proposed tax credit extension for homebuyers.

"The Obama administration is still considering whether to back extending a popular tax credit for first-time home buyers but is skeptical the government can afford the cost, Housing and Urban Development Secretary Shaun Donovan said Tuesday.

The $8,000 tax credit, which will expire at the end of November, has boosted home sales in recent months, helping to revive a flagging housing market that had been a key factor driving the recession.

Donovan told the Senate Banking Committee that while he was aware the program was popular with lawmakers, "At the same time, I am mindful that these proposals can be very expensive, especially at a time of significant budget deficits."

"I do not believe that a catastrophic decline would be the result of the end of the credit," Donovan said."

I think the big difference here is in the parties speaking. Mr. Donovan is not running for re-election so he is able to tell the truth about the cost of this tax credit. Senators running for re-election are looking for something to take home before the 2010 election.

In a related story the IRS is reporting massive amounts of fraud from the first round of tax credits for first time homebuyers. Imagine that in an industry as clean as housing people were trying to take advantage of the system (snark free of charge).

"The internal watchdog for the U.S. Internal Revenue Service is expected to warn the agency for the fourth time about fraud in the multibillion dollar homebuyer tax credit program, according to a report to be released at a congressional hearing later this week.

About 1.4 million tax returns have been filed to take advantage of the United States' $8,000 credit and many lawmakers want to extend the credit, which expires on Nov. 30. It has cost the U.S. government about $10 billion.

The IRS faces significant challenges preventing individuals from scamming the tax credit program, the inspector general for tax administration for the U.S. Treasury Department will tell lawmakers on Thursday.

The inspector general found at least 70,000 tax credit claims, totaling $489 million, were granted to individuals who do not appear to qualify for it. These include those who had filed recent mortgage interest deduction forms, indicating they do not qualify."

Again, this was a credit for first time homebuyers. It's pretty easy for the IRS to cross-check your previous filings to see if you filed a tax return that included a deduction for mortgage interest -- indicating that you were a homeowner recently. I'm stunned that people would be so foolish as to assume that IRS wouldn't catch this. The fact that 70,000 people appear to have filed false claims seems more than a coincidence, it seems like a coordinated effort.


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