Congressman Ron Paul is usually on the right side of issues that involve government intervention in the marketplace, but when it comes to the Homebuyer Tax Credit he gets it completely wrong:
Rep. Ron Paul, R-Tex., who is usually opposed to government intervention in the economy, has introduced legislation to permanently extend the first-time homebuyer tax credit and to make the credit available to people whose homes have been destroyed by a natural disaster, such as a hurricane.
“It is hard to think of a more beneficial or compassionate expansion of the first-time homebuyer tax credit than to make the credit available to those whose homes have been destroyed or damaged by natural disasters,” Paul says.
“In addition, the changes to the casualty loss provision will help more taxpayers affected by natural disasters,” he says. “Providing tax relief to first-time homebuyers and to those affected by natural disasters should be one of Congress’ top priorities.”
The legislation also makes a number of changes to existing tax credits in order to enhance their usefulness to victims of natural disasters, according to a news release from Paul’s office.
Specifically, this bill makes casualty loss deductions available to taxpayers who don’t itemize, and makes it available to them for five years after the disaster.
If passed, the proposed legislation would also help people who have lost their jobs because of a natural disaster by making unemployment payments provided under the Disaster Relief and Emergency Assistance Act tax-free.
As someone who has a better understanding of economics than most other Members of Congress, Paul should know better than this. The fact that it’s a tax credit isn’t relevant, what is relevant is that the HTC involves government manipulation of the market that, in it’s first version, cost the government about $ 43,000 per house sold and, in it’s second, did little to actually create new economic activity.
This isn’t the first time Ron Paul has proposed a tax credit like this. Back in 2008 he proposed a tax credit of up to $ 2,000 for Americans who trade in older cars for more fuel efficient cars. As I said about that credit at the time:
As Adam Smith taught us long ago, and as the Austrian economists that Paul admires have also said, increased demand inevitably leads to increases in price, and when that increased demand is created not by market forces, but by government subsidies — whether in the form of outright cash payments or tax credits like the ones Paul proposes — they essentially create an artificial increase in demand that distorts the market.
The net result of the tax credit plan that Paul proposes, assuming that it would even work, would be to artifically increase the price of the very fuel efficient cars that his plan claims to make more affordable.
For a guy who talked a lot about free markets and getting the government out of the economy while he ran for President, this proposal is certainly surprising and entirely inconsistent.
And the same thing is true of this new plan of Paul’s. It’s not a free market if you’re giving tax subsidies to people for engaging in certain preferred forms of economic activity. Check your premises Congressman Paul.
H/T: Virginia Virtucon