Congress Proposes More Fraud?

The “stimulus” bill included an $8,000 tax break for first-time home owners. Now comes news that the program is wracked with fraud, but some politicians still want to extend the benefit.

Yesterday, the Treasury’s Inspector General told congress that 580 kids, some as young as four, had qualified as homeowners. There were 19,300 claims for houses that hadn't actually been purchased. 74,000 claims where the applicant appeared to have owned a home within the last three years, hardly making them “first time” homebuyers.

The IRS is now auditing over 100,000 of the credit claims. But the Inspector General isn’t confident they will reduce fraud.

Based on the administration of the Credit to date, I am concerned about the IRS’s ability to effectively administer the Credits claimed within the original deadline, let alone within an extended deadline for certain taxpayers.

I’m not surprised -- this type of fraud always happens in government programs. The GAO says that 25% of Earned Income Tax Credit money went to people who shouldn't actually have qualified. People like Yolanda Hudson in Michigan, who was arraigned this week for filing 23 fraudulent tax returns claiming more than $90,000 in EITC subsidies.

The GAO also reports that 10 percent of unemployment benefits and 10 percent of Medicaid payments are fraudulent.

Even if there we no fraud, this program is a bad idea. Yes, people will buy more houses -- but so what? That means they will buy less of everything else.

And we already have too many housing subsidies. Taxpayers have given Fannie Mae and Freddie Mac $100 billion, and we’re on the hook for $300 billion more.  "Section 8" housing subsidies cost 15 billion a year. The HOPE for Homeowners Act authorizes the FHA to make up to $300 billion in refinancing loans. The FHA gets more of your money, although Bloomberg News reports that they may soon need a $54 billion bailout.

Real estate lobbyists usually get their way with Congress, but we should stop trying to prop up the housing bubble.   Prices need to find a floor.  Then the market will fix itself.