Johnny Isakson Needs to Pull His Head out of His Ass

So it looks like the Senate passed Senate Amendment #106 of the the stimulus bill (H.R. 1). The amendment was sponsored by Senator Johnny Isakson (R-GA):

“WASHINGTON —The Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession.”

Okay, let’s see what is wrong with this approach, or why, as the title of this post states, Johnny Isakson needs to pull his head ouf of his ass.

1) Yes, it is true that our current economic recession started with the collapse of the housing bubble, but its collapse was brought about by the fact that too many home buyers were unable to repay their mortgages, which led to a wave of foreclosures that seriously destabilized home prices. So if the original problem is the massive wave of foreclosures, how is a tax credit going to help remedy that?

Now an argument could be made that a tax credit like this will give incentive for people to purchase homes and clear out existing inventory, thus driving up housing prices and stabilizing the market. But in order for this argument to be valid, one must assume that the tax credit will spur enough home purchases to keep up with foreclosures. But if there is no remedy for home owners on the verge of foreclosure, I don’t see how this balancing act is likely.

If the Senate really wants to address the crisis in the housing market, it should combine this tax credit with relief for home owners on the verge of facing foreclosure by allowing judges to rewrite their mortgages. But this is unlikely because it’s a hard sell politically, as it would be seen as a violation of contract.

2) Even if the tax credit spurs enough home purchases, there is still the matter of obtaining credit for mortgages on these newly-purchased homes. Now in case you forgot, we also have a goddamn credit crisis! The Isakson amendment gives home buyers a tax credit of 10% of the price of the house, with an upper limit of $15,000. So that still leaves a lot of remaining debt that these new buyers must pay off. And since they will have trouble obtaining credit, I don’t see how this tax credit really helps you in the long run.

3) This tax credit does not help the people who are really in need of help. Think about it, people who will most likely buy houses in this environment are those with enough income to a) purchase a house and b) pay back their mortgages on time. This is a demographic that does not really need taxpayer money to weather this storm. If we are going to spend public money on this tax credit (which reportedly costs $18.5 billion), we should be spending it to help those who need it the most.

4) This tax credit is not likely going to help the construction industry retain or generate new jobs. Why? Because the problem, once again, is with the massive number of foreclosures. There is a lot of inventory right now in the housing market, but the key here is that it is EXISTING inventory, which means houses that were already built, not new houses that need building, which means keeping people in the construction industry employed. New jobs in the construction industry will only be generated once existing inventory is bought up and there is still demand for more, but this is not likely to happen in this economic environment.

5) So let’s see here: the problem started because people were encouraged, through policy, to purchase homes that they are not likely to be able to keep. So in order to solve the problem, the policy response is to…encourage more of the same? Someone explain to me how this makes any sense?

In other words, Johnny Isakson doesn’t know his head from his ass.

But here is something ironic: when the stimulus passed the House, Senate GOP complained that the cost was too much and vowed to cut the cost down. Guess what? The Senate version of the stimulus now costs more than $900 billion, compared to the $820 billion of the House version.

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