Helping Housing Out : Bush’s proposed tax credits are nothing to sneeze at

Just about everyone is dumping on President Bush’s economic plan, but it’s not all bad. In fact, his proposed housing tax credits, if creatively used, just might help relieve a horrific housing shortage here in Los Angeles.

Coming up with a huge down payment remains the biggest hurdle for most first-time home buyers. Bush is calling for a tax credit equal to 10% of the purchase price of a house but limited to a maximum write-off of $5,000 over two years. The government offered a similar temporary home-buyers tax credit for new housing during the severe 1975 recession. Economists can’t pinpoint how well that $2,000 credit worked, but they can substantiate the near-doubling of housing starts by the following year.

New construction is a proven job generator. Housing sales, which fell 6.2% last year in California, also create jobs for movers, electricians and others, as well as a demand for appliances, furniture and other goods.

To enhance this tax credit, Congress should consider allowing up-front uses of the benefit before taxes are filed. Lenders, for example, could apply the value of the tax credit to the down payment or closing costs. Bankers could add the value of the credit to marginal incomes to help more buyers qualify for mortgages.

The President would also allow first-time home buyers to withdraw up to $10,000 without penalty from an individual retirement account for use as a down payment. But few young home buyers have fat IRAs; their grandparents and parents are more likely to have the money and might be persuaded to make a gift of a down payment if they could do so without penalty.

If Congress acts quickly--and mortgage rates remain relatively low--the benefit could help families buy homes. Those housing sales also could put more Americans back to work.