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Cash for Clunkers

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

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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