CNBC "The Kudlow Report" - Transcript

Interview

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MR. KUDLOW: Welcome back, everybody. Joining me now is Republican Senator Johnny Isakson from Georgia.

Senator Isakson, welcome, sir. Thank you.

SEN. ISAKSON: Glad to be with you.

MR. KUDLOW: Now, look, I'm reading in the paper your amendment, $15,000 tax credit for new home purchases. And I'm saying, oh, no, don't go there -- $20 billion cost. You know, it's already the most heavily subsidized area. Mortgage interest rate, all that stuff is deductible. There is virtually no capital gains. We subsidize housing so darn much. Why don't you just let the market work? This isn't going to be any good. You're just going to get people to borrow more, and they can't afford it anyway.

SEN. ISAKSON: Well, it has nothing to do with borrowing, it has everything to do with repeating what this country did in 1975 to take us out of what was then the worst housing crisis ever by passing a tax credit. In one year's time in 1975, the country absorbed two-thirds of the standing inventory, house values stabilized, the economy came back. So it's not an idea that hasn't been tried. It's an idea that's been proven, and it will help. And the single biggest problem we have in the economy today is that we have a collapsed housing market. Equities are down. One in five houses are under water. It's time to stimulate that market.

MR. KUDLOW: There's a lot of people -- I know Republicans are with you on this. It just sounds like a wonderful thing to do, Senator. But I've got to tell you, I think housing subsidies are part of the problem, not the solution. I think far too many people have gone into homes they cannot afford. I think your tax credit is going to tempt them again. You've got your 20 percent down payment now. That's going to make it tougher. Why don't you let the market work? And this 1975 stuff, I don't buy it one bit. If the economy recovers, sir, overall macroeconomics, that's going to help housing. These little things here, why are you directing traffic to housing? This is the national realtors, this is the homebuilders, this not the whole country.

SEN. ISAKSON: Well, first of all, you can go back and read 1975 history for yourself, but it did work. Second of all, it is not going to cause the people who got into a house they shouldn't have been in to get back in the market. They shouldn't have gotten loans in the first place. And with underwriting like they have today, you would not get in there.

What it is going to do is entice those people who are viable to think, is it time to get in the marketplace and begin to stabilize it? And when it does, it will recreate a lot of the values that have been lost and level out the economy as far as the average family is concerned.

MR. KUDLOW: But you see, my point is the national realtors have published the affordability index, prices and median income and so forth. It is at an all time high. That is the best stimulant to picking up foreclosed homes that are real cheap and new couples can buy homes. A lot of people shouldn't buy homes, as you well know. We got some economists coming on. They don't believe that this is going to have any real price effect. This is not 1975. This is a different story today, and you're just adding $20 billion onto this budget, and I don't see why the money has to go into housing. Why not across-the- board tax cuts for the entire economy? That's what I'm getting at.

SEN. ISAKSON: Well, as you well know, there have been a number of tax cuts for the economy, including the business tax reduction from 35 to 25 percent, as well as the lower-bracket level deductions, as well as a one-year forgiveness of 50 percent of the payroll tax, but there have been no takers on the other side. Everybody in the Senate agreed the housing tax credit made sense.

MR. KUDLOW: All right. Senator Isakson, you may win politically. I beg to differ economically.

SEN. ISAKSON: Well, I hope the country wins. That's what's most important.

MR. KUDLOW: All right, sir. Thanks very much for coming on.

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