From the Record:
IMAGINE YOUR boss suddenly announced that the company would be giving $5 to the next 20 employees who took their lunch breaks, and that the money would be coming out of everyone else’s paychecks.
It would certainly benefit the few who were first into the cafeteria, and it might encourage some workers to take a break that they otherwise would not. However, everyone who had already eaten or might have been stuck on conference calls would see this as an arbitrary and pointless policy.
Unless the people affected were Trenton lobbyists — then they would call it stimulus.
Governor Christie recently vetoed a bill that would have given New Jerseyans of all incomes up to $15,000 if they purchased a home during a tax credit program, which would have existed until $100 million was spent over three years. Legislators are now considering a vote to override the governor’s veto. The policy may be well-intentioned, but it would do little to help put New Jerseyans back to work.
Despite being wrapped in the moniker of a tax credit, the $100 million is actually an expenditure and a partial subsidy for home ownership. It has the same impact on the state’s budget as any other subsidy in that all taxpayers contribute to the general fund and then a small segment of New Jerseyans get to take from the pool. Whether the government issues a check or deprives itself of the revenue in the first place is inconsequential.
The state and federal government already give benefits to homeowners through the tax code, such as the mortgage interest deduction. At worst, further subsidies of the real estate market distort consumer choice and partially reinflate the housing bubble by creating artificial demand.
Even in a best-case scenario, this subsidy would minimally affect New Jersey’s economy. The non-partisan Office of Legislative Services estimates that the portion of the credit dedicated to existing home sales evaporates with less than 2,000 transactions per year. That represents less than 2 percent of all existing home sales in New Jersey, even in a down economy.
However, most of these 2,000 sales would not represent new activity. The legislation simply doles out money on a first-come, first-served basis, meaning the overwhelming majority of those transactions would have occurred regardless of Trenton’s action. This is especially true with this tax credit because it would come on the heels of a recently expired and similar federal program. In fact, much of the decline in home sales is because the federal program altered the timing of home sales, but not overall activity. There is no reason not to expect a similar outcome in New Jersey.