Tax incentives on homes, cars are a good idea

Our view: More spending in these sectors will help the overall US economy

Arizona Daily Star — Feb 09, 2009

With the nation mired in a deep recession that appears to be getting worse, it’s time to use every tool available to get the U.S. economy moving again. Tax incentives are one such tool, and last week the U.S. Senate proposed some that should boost the home and auto industries, two of the most hard-hit sectors of the economy.

We were encouraged to see lawmakers — one Republican and one Democrat — come up with ideas that could have a real financial impact for regular people.

Last Wednesday, the Senate approved a tax break of up to $15,000 for people who buy homes.

The proposal by Sen. Johnny Isakson, R-Ga., would allow a tax credit of 10 percent of the value of new or existing residences. Current law provides for a $7,500 tax break but only for first-time homebuyers and only for brand-new homes.

Isakson’s office said the proposal would cost the government an estimated $19 billion.

A day earlier, the Senate voted to give a tax break to new-car buyers by allowing them to write off sales taxes paid on an automobile purchase as well as the interest paid on a car loan.

Sen. Barbara Mikulski, D-Md., led the effort for that tax break, which would apply to the first $49,500 in the price of a new car purchased between last Nov. 12 and Dec. 31, 2009. Individuals with incomes of up to $125,000 and couples earnings as much as $250,000 could qualify, including those who do not itemize their deductions. A couple would save an estimated $1,553 on a new $25,000 car, her office said.

Mikulski’s office put the cost of the tax break she sponsored at $11 billion over 10 years.

Both tax breaks are part of the massive $827 billion — though that number seems to change every day — stimulus plan being debated in Congress.

Unlike previous stimulus funds that went to banks and Wall Street, the tax incentives for home and auto purchases are targeted at average taxpayers. We believe these tax incentives would have more of an impact on everyday people.

Home and auto purchases have the potential to lift other industries as well. When someone buys a home, she is likely to also buy furniture, landscaping plants and household products, for example.

When someone buys a car, he is more likely to also buy tires down the line, use the services of mechanics or go to the auto store for a new cup holder. He also pays the gas tax.

Once the glut of homes on the market is reduced, the housing industry can kick back into gear.

Isakson, who has a background in real estate, compared the current housing crisis to that of 1974. That year, he recently told the Atlanta Journal-Constitution, there was a three-year supply of housing on the market. There is now an 11-month supply, he said.

Three decades ago, President Gerald Ford pushed through Congress a tax credit for anyone who bought a home in 1975, Isakson said. That move, he said, reduced the housing supply to 10 months — housing rebounded and the economy recovered.

These tax incentives by themselves won’t turn the economy around. However, they should encourage Americans who are in a position to spend to open up their purse strings. If people begin buying homes and cars again, we believe that would help the economy recover. We encourage Arizona’s congressional delegation to support these tax breaks and let them become part of the stimulus plan that eventually reaches President Obama’s desk.