Tough times lead to bad ideas—and sometimes, really bad ideas.
Consider the tax break being pushed by the National Association of Homebuilders.
They would get to offset their current losses by looking back to previous years and getting a retroactive tax break. The provision is estimated to cost about $6 billion and is part of a larger $15 billion bill that passed the Senate last week.
Now, we’re all for most tax breaks, especially those that cut marginal tax rates and spur economic growth. (We’d be even more supportive of fundamental tax reform that eliminated most breaks, and set a low flat rate in its place.)
But that’s not what this tax break does. It’s meant to bailout homebuilders in the hope that they will keep on building and, consequently, keep construction workers employed.
Construction workers have clearly been hurt by the economic downturn. And more job losses are likely before things turn around.
But there is another problem: Home prices are falling in most parts of the country and won’t stabilize until supply gets in line with demand. The only way to eliminate the oversupply is when enough people are ready to buy and can borrow the needed money.
Of course, many homebuilders will continue building because people are still buying new homes, just at a slower pace. Yet the homebuilders want to use the tax code to artificially goose the home supply, which has the economic impact of reducing prices even more.
If Congress really wants to give business a helping hand, then cut the corporate tax rate, using the Irish model. The Emerald Island cut corporate tax rates to a flat 12.5 percent and business is booming. The U.S., by contrast, has one of the highest corporate tax rates in the developed world: 35 percent at the federal, plus and average of 4.3 percent at the state level, according to the Tax Foundation.
And yet what have the Democratic presidential candidates been calling for? An increase in the tax rates, of course.
What Congress, and the presidential candidates, should be focusing on is ways to build a strong, growing economy, not more homes.