The Senate Stimulus: It is Getting Worse
The Senate has made the stimulus worse.
At a cost of $130 billion, the bill the Senate passed today added three tax provisions that would do little to boost consumer spending–the key to digging us out of our economic hole The stimulus losers: patching the Alternative Minimum Tax for another year ($70 billion), giving a new tax subsidy to homebuyers ($39 billion), and providing new car buyers with a new tax break ($11 billion).
The homebuyer and new car credits would benefit the wealthy far more than low-income people who would be more likely to spend any windfall. They would give many taxpayers money for doing what they were going to do anyway. AMT relief may be necessary and politically inevitable, but it will do almost nothing to boost the short-term economy.
Here a quick look at each of these bad ideas:
AMT. For eight years, Congress has temporarily patched the AMT to prevent millions of taxpayers from getting whacked by the levy. Instead of permanently fixing the law, this annual rite has held the number of victims of the AMT to about 5 million. Without it, as many as 30 million of us would get clipped.
Sometime this year, Congress will patch the AMT again. But this proposal isn’t stimulus. Most of those who would be protected from teh AMT have no idea they are at risk. Few of us are likely to run out and spend more after having been saved from a tax we never knew we owed.
The Homebuyer Credit. As part of last year’s stimulus bill, Congress gave new homebuyers a $7,500 refundable tax credit. Unlike other credits, it was effectively designed as an interest-free loan that taxpayers would pay back over 15 years. The House version of this year’s stimulus turned it into a grant that homebuyers would would not have to repay.
But the Senate did much more than that. It doubled the credit to $15,000 for those who buy over the next year. It made the subsidy available to any homebuyer no matter how wealthy, but at the same time blocked low-income families from using it by eliminating its refundability.
That turns the Senate proposal into yet another subsidy to wealthy buyers, many of whom would be purchasing houses anyway. Because it would increase demand for high-bracket homes, it might push up the price a bit, creating a small windfall for sellers as well. However, it will do little or nothing for either buyers or sellers of low-end homes who are still overwhelmed by a dysfunctional credit market.
The Car Deduction. This bad baby would give a deduction for interest and sales tax to those who buy new cars worth up to $49,500 in 2009. The full deduction would be available to couples making up to $250,000.
The intention may be to boost new car sales, but the more likely outcome: The wealthy will buy fancier cars than they otherwise would. A middle-income couple buying a new, mid-priced car might get a tax subsidy worth just a few hundred bucks. In an environment where these families are struggling to get loans and have either lost their jobs or fear they might, those few extra dollars are not likely to encourage very many to buy a new car.
For that $130 billion, the conferees ought to be able to do a lot better than this.