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Cash for Clunkers

A Common Thread in the Home Buyer’s Tax Credit and ‘Cash for Clunkers’

3:52 PM EST on January 20, 2010

Back in the days of "cash for clunkers," which saw the Obama administration send nearly $3 billion in taxpayer-funded rebates to boost the sagging auto industry, our Ryan Avent and several other economics wonks pointed out an inconvenient fact: Many participants in the program would have bought cars anyway, and the rebates only pulled their purchases forward in time.

Now it seems that the tax credit for new home buyers, opened up to even existing homeowners as part of an $11 billion expansion passed in November, is having a similar effect on the homebuilding industry.

As MarketWatch reports from the Las Vegas International Building Show, homebuilders are still mourning the housing bubble that popped so perilously as subprime mortgages imploded, but they are cautiously optimistic about this year as compared with 2009. Still, mitigating factors persist -- and here's one:

Payback from the expiration of the home-buyer tax credit."The tax credit is pulling people forward who were in the marketanyway. So the sales pace isn't quite as vibrant as suggested by theraw data. There could be a payback that materializes (in July) when thecurrent version expires," Sullivan said.

Unless, to the chagrin of environmental groups and many, many voters who rent, Congress decides to extend the sprawl-enticing tax credit one more time in the summer. Lawmakers are often reluctant to let temporary tax credits fade away when industries are lobbying in favor of their extension -- even if the underlying economic logic is demonstrably shoddy.

And if Transportation Secretary Ray LaHood's comments at the Detroit Auto Show this month are any guide ("You see no criticism of 'cash for clunkers' in America"), even the auto rebates could make a return.

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