State Tax Credit Program Short on Funds

May 13, 2009 10:00:22 PM PDT
In the midst of this tough housing market there is a rush of sorts, to buy new homes. So many people are taking advantage of a $10,000 tax incentive that the state program is running out of money months ahead of schedule.

The $10,000 state tax credit given to Californians who buy brand new homes is supposed to last one year or until the $100 million runs out. But, in the first two months of the program, half is already allocated, meaning more than 5000 people bought new homes during these tough economic times.

"We need a spark to accomplish some kinds of economic recovery and we believe the tax credit has demonstrated it is just that kind of spark," said Tim Coyle with the California Building Industry Association.

California's building industry wants more and is pushing lawmakers to kick in another $200 million to the program. But, given the state's unrelenting money troubles, an economist at the U.C. Davis Graduate School of Management questions whether this is how limited tax dollars should be spent.

Dr. Victor Stango says, "Any discussion about the merits of continuing this program needs to consider whether sending dollars to new home purchases, new home buyers, is a better thing for economy than doing something else with those dollars."

The state is already gearing up for a second round of deep cuts to vital services like education. Expensive programs will be heavily scrutinized.

"We have to evaluate it. I am sure that there won't be any big-ticket bills that will make it out of appropriations this year," said Assembly Speaker Karen Bass.

The housing industry points out, though, every home sold in California means $16,000 of tax revenue for the state. Minus the housing credit, the net is $6,000.

"Housing has pulled the nation and state out of every economic recession since WWII. If we want to come out of this economic recession, we'll make an investment in housing," said Coyle.

A federal tax credit of up to $8,000 is also available for first-time home buyers who qualify between now and December 1st.

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