Recent Government Initiatives Given Negative Assessments

From Edmunds:

Edmunds.com, the premier resource for online automotive information, has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle sold.

Nearly 690,000 vehicles were sold during the Cash for Clunkers program, officially known as CARS, but Edmunds.com analysts calculated that only 125,000 of the sales were incremental. The rest of the sales would have happened anyway, regardless of the existence of the program.

Now, that’s not much bang for the taxpayer buck.  What about the homebuyer tax credit?  From the Brookings Institution:

So let’s assume that 15 percent of homebuyers will not receive the new tax credit, so there is no change in baseline sales for these people. Of the remaining 85 percent, let’s assume the median house sale price is $180,000 (compared to the $200,000 median price including the high earning buyers). Assuming a price elasticity of -0.65, this implies an increase of about 253,000 (= $15,000 / $180,000 * 0.65 * 0.85 * 5.5 million) additional sales at an estimated tax expenditure of $73.9 billion (= $15,000 * 4.928 million), implying a cost-per-additional-sale of about $292,000. Using NAHB’s implied price elasticity of -1.7, we get about 662,000 additional sales at an estimated tax expenditure of $80.0 billion, implying a cost-per-additional-sale of about $121,000.

If the goal of extending and expanding the homebuyer tax credit is to spur housing sales, an optimistic assessment is that we will spend $121,000 in tax revenue per additional housing sale. Again, this is a very poorly targeted subsidy.

I should note that neither Brookings nor Edmund’s are known as right-wing outfits.  Certainly, Brookings could be described as “left of center.”  Government programs like these only invite and exacerbate inefficiencies in the economy by utilizing artificial incentives to promote growth.  There will certainly be negative consequences to these actions in the future whether they’re eventually abandoned or not.  As the excerpts above effectively argue, these expansive government policies do more to waste tax dollars than promote growth.

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One Response to “Recent Government Initiatives Given Negative Assessments”

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