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True Cost of Government Subsidies (Part II)

In my previous post I addressed the true cost of the cash for clunkers program. If you thought that was ugly, let’s analyze the new homebuyer’s subsidy…

According to the National Association of Realtors:

“NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit.  Buyers have little time to act because they must complete the transaction by November 30 to qualify for the credit.  Unless extended, contracts signed but not completed by that date will not be eligible – it is taking approximately two months to complete home sales in the current market.”

They actually made the math pretty easy on this one…

If there are 1.8M buyers who take advantage of the $8,000 credit that equates to 1.8M*8,000 = $14.4B cost to the program via taxpayers (I had to write it out because there were so many zeros).

The key here is that they estimate only 350,000 additional buyers came to market because of the tax credit.  That means that for each marginal sale the taxpayer is paying $41,142 per additional house sold.  So we are spending $41,142 for an $8,000 tax credit….Brilliant.

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