On March 24, Representative Paul Ryan (R-WI), the ranking Republican on the House Budget Committee, said this about the President’s budget: “Not only are we mortgaging our children's future; we are mortgaging our current prosperity. The President is proposing a gusher of new debt, new taxes, and more spending.” We are, he concluded, “on a massive borrowing, taxing, and spending spree.”
The only problem is that Ryan and other Republicans are perfectly happy to propose spending increases of their own, as long as they are masked as tax cuts. The House GOP leadership is proposing a package of massive new housing subsidies, including a $5,000 credit for those who refinance their homes and a $15,000 credit for buyers. I hate to break the news, but these tax credits are spending.
Last December, TPC’s Len Burman and Eric Toder, along with Chris Geissler, figured that in 2007, the government passed out $760 billion in these sorts of tax expenditures. That is a stunning sum when you consider the government collected only about $1 trillion in individual tax revenues that year. Another way to think about it: Those tax expenditures added up to almost 6 percent of Gross Domestic Product. So if you think about this money as outlays, which they are, the government was spending roughly one-quarter of GDP. By now, it is in the neighborhood of one-third.
Of course, this idea that tax subsidies are somehow better than spending is not just a Republican view. After years of being beaten down as big spenders, Democrats have embraced the tax code as a honey pot for their own agenda. The just-enacted stimulus was loaded with tax subsidies for buying a house or a car, going to college, or installing energy-efficient windows. These may be good and worthy ideas, they may even help stimulate the economy. But they are spending. And our budget debate would be a lot more sensible if everyone just admitted it.
The House GOP idea has a lot more wrong with it than just being new spending in the guise of tax cuts. A $15,000 credit for all buyers, regardless of income, is wildly mistargeted. Much of the benefit will go to high-income taxpayers who would have bought anyway, and would only be encouraged to buy a more expensive house. It will also almost surely be used by real estate agents to put lower-income buyers into homes they otherwise couldn’t afford. And does that sound familiar?
The subsidy for refinancing makes even less sense. A prudent refi will reduce a homeowner’s costs. So why should the government pay people to do something that is already in their financial best interest? The cynic in me can’t help but think it is to encourage refis that are otherwise not smart for homeowners but beneficial to lenders.
We can, and should debate the merits of this plan, but let’s not pretend it is a tax cut rather than that devil spending.
