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Ron Paul Gets It Wrong On The Homebuyer Tax Credit

by @ 12:29 pm on June 5, 2010. Filed under Economics, Politicos & Pundits, Politics, Ron Paul

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

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9 Responses to “Ron Paul Gets It Wrong On The Homebuyer Tax Credit”

  1. dougisalawyer says:

    Your argument does have merit, but it ends at this website because there is already the manipulation of the market to begin with. We can’t be on point (a) to get to point (b). But consider the non ideal circumstances that you’re already at point (b). So at point (b) you work with what’s available within your limitations. You either advocate for more money to the people within a realistic grasp or you don’t. One congressman can really do so little. Ideally we would pay no federal income tax and sit around with our thumbs up our assholes waiting for ‘tax credits’.

    Stick to law and twitter Doug. Let those who went to uni for business and economics worry about this stuff ace. Ever since the days of Ron Paul you have all these propped up so called “libertarians” who are all sudden economic and money masters. If it took following a presidential candidate and reading a few books then my six years of schooling meant nothing. It’s a good estimate that most of the people who work for libertarian think tanks have no real world experience. Never have worked in an actual bank. Pulled an actual credit report…even valued a loan. So if you can’t do the simplest of money things, how can you even have an opinion based in theory of more difficult concept in economics.

  2. CHW says:

    I think his whole point is to give more people more of their own money back. It effectively lowers their taxes and is more effective than giving FEMA the money. It’s not like lowering taxes is artificially tampering with the free market otherwise no libertarian would ever condone lower taxes.

    At the end of the day it seems better for more $$ to be in the hands of more private individuals… even if the legislation doesn’t extend the credit to those outside of disaster areas. In Paul’s mind, the disasters serve as a good excuse to return money to the individual. It is just a vehicle for tax relief.

    Cash for Clunkers and other market-tampering government actions was different, but I won’t go into detail.

    It is better for some people to get tax credits than none at all, perpetually keeping everyone’s tax burden high and witholding more of their money.

  3. Darel says:

    Doug,

    You don’t understand the idea of the tax credit but then again it’s a waste of time to explain.

    The next thing you will be attacking is Barry Manilow’s support of Ron Paul, as you have in the past.

  4. Darel

    What you don’t understand is that this tax credit is absolutely stupid economics.

  5. dougisalawyer says:

    tax credits are stupid. but it’s a necessary evil when no other options are available. soon even that option will be exhausted. the last decade of delusion is exactly why small but strong sustainable growth is good. we can beat this, we just need to start making some shit the world wants. exporting tacky items and Hollywood blockbusters isn’t going to do.

  6. Thomas says:

    He really isn’t doing anything wrong. He’s helping people keep their own money, which is one of the very ideals this nation was founded upon. I believe he is right in doing this.

  7. One doesn’t need an economics degree to realize that this tax credit is manipulative. If a tax credit is economic, then give it to everyone to use for whatever he/she chooses.

  8. dougisalawyer says:

    Alright then Roger. No tax credits and nothing extra coming our way. Then we can just sit here and go…”gosh darnit, gee golly I hate paying so much tax.” When you know, I know, even the lawyer twitter extraordinare’ knows we’re not going to likely see a tax decrease.

    btw, instead of saying he/she…just say dickhead or bitch.

  9. tfr says:

    Please don’t feed the troll.

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