Thursday, October 22, 2009

Calling Stanley Surrey: Excessive Homebuyer Credits Exceed $600 Million

An audit by the Treasury Inspector General of Tax Administration (TIGTA) indicated that over 90,000 claims of the new Homebuyer credit (total taxes foregone: $636 million) appeared to be either errant or fraudulent. The credit, lauded by the real estate and construction industry as protecting those industries from collapse, allowed first-time homebuyers to claim a refundable credit of up to $8,000. The most common problem (about 70,000 cases) were when the credit was claimed by buyers not buying their first house. About 20,000 cases involved credit claims by people who intended to buy but had not yet bought a home and 500-600 cases involved claimants under the age of 18 (a four year-old in one case) who generally would not be legally able to contract for the purchase of a home.

Presumably, the late Stanley Surrey, who with Paul McDonald wrote the seminal piece on tax expenditures, would be horrified by this credit even before this level of tax credit abuse. As often happens with Big Government, good intentions lead to questionable law which then leads to bad results.


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