More on the Homebuyer Tax Credit

If we use the same parameter inputs, but change the credit to $8,000 from $15,000, and assume baseline sales of 2.8 million rather than 5.5 million (based on existing and new homes sales from December 2008 through June 2009), then we get an estimate of 69,000 additional sales at $19.6 billion. The $19.6 billion is higher than JCT’s estimate of $16.7 billion, but I would say within the ballpark. Part of the difference is due to JCT’s estimate that there will be a revenue gain of $1.8 billion from 2012 to 2014, since homebuyers must pay back the credit if they sell their house within three years. Even assuming the $1.8 billion in additional revenues, the point remains the same – an estimated $258,000 per additional house sold (i.e., $17.8 billion divided by 69,000) is a poorly targeted subsidy!