At a hearing yesterday that lasted well into the evening, the Senate Budget and Fiscal Review Committee reviewed revenue-raising options that could be used to help close the budget gap. We offered some basic principles and potential options, as did the Legislative Analyst’s Office (LAO). The Department of Finance presented the Governor’s proposed tax cuts that, it is worth noting, aren’t “scored” in the Governor’s Proposed Budget. That means that enactment of his proposals, most notably the expansion and extension of the homebuyers’ tax credit, would further widen an already gaping budget gap.
In light of support for continuing the credit offered by several senators at the hearing, it is worth reminding readers of what we’ve written about the homebuyers’ credit here before. Budget Bites readers and lawmakers may also wish to read the Riverside Press-Enterprise editorial that appeared Tuesday entitled “Tax Posturing” which notes that the fact that buyers “snapped up” tax credits doesn’t mean that they were an effective or appropriate tool for stemming construction industry job losses:
“But a tax break on home sales misreads the factors behind those job losses. New home construction fell because land values and housing prices tanked. Developers could not build new homes cheaply enough to compete with the flood of inexpensive foreclosed houses coming on the market. Foreclosed homes, for example, accounted for 41 percent of the houses sold in California in December…No tax break on home sales will change those conditions. And where is the sense in urging new home construction when the state already has a surplus of vacant houses?”
As I noted at yesterday’s hearing, the first thing you should do when you are in a hole is to stop digging.