Liberals and conservatives in California have debated endlessly over the benefits and shortcomings of taxation. More taxes produce a broader and more durable social and welfare safety net, argues one side. The other side says taxes that progress with incomes discourage initiative, enterprise and hard work.

And, as California is well-recognized as one of the nation’s higher-tax states – and maintains its appetite for more government spending – the debate is certain to continue.

But, someone will record a moment in the state’s history – earlier this year – when, for only a few months, a tax cut worked so well that everyone liked it. No kidding. Nearly the entire Legislature not only voted for it but later marveled at its success.

What was this post-partisan, public-policy genius? It was simply a tax credit for the purchase of a newly constructed home. Authorized at $100 million as part of a deal in February to, guess what, raise taxes, the California homebuyer tax credit said to would-be customers: “you buy now, and state government will cut you a break on your taxes – up to $10,000 – for the next three years.” On March 1, when the incentive took effect, the stampede began.

Though the program was set to expire in March of 2010, hungry consumers had other ideas. By the end of the first month, more than 25% of the credits had been claimed. By July 1, they were all gone – eight months ahead of schedule.

The tax credit was the tipping point for so many in California who were waiting for their best chance at acquiring a piece of the American Dream. Said a 20-something who ultimately couldn’t resist a condo value in Anaheim, “My wife and I were very cautious, watching interest rates and home prices, but still not ready to buy.” That is, until Sacramento decided to give the state economy a booster shot and in February passed the tax credit. “When the state enacted a tax credit, we jumped in.”

That was the story all over California. But, it wasn’t the whole story. Because the tax credit was only for newly built homes it also meant jobs would result from each purchase. That’s right. Virtually every time a tax credit was used by a California homebuyer, people went back to work. According to a national study, two to three new, permanent jobs are created every time a new home is built. California’s own Sacramento Regional Research Institute shows us why. In a separate study, SRRI lists pages and pages of jobs that in whole or in part depend on homebuilding.

Another piece of the story is the state and local tax revenues generated by new home construction. The Housing Bottom Line, a study of housing’s fiscal benefits by a former director of the state’s finance department and his partner says as much as $16,000 in tax revenues go straight into the state treasury each time a new home gets built in California.

Doing the math – $16,000 in minus $10,000 out – it became clear: this tax credit was not just a jobs machine, it was a fiscal winner too.

But, the real surprise was the consumer reaction that this tax relief produced. California had been a buyer’s market for nearly three years before the tax credit was authorized but actual buyers were few and far between. Even though homebuilders had knocked thousands of dollars off of homes, they didn’t sell. Some homebuilders reduced prices by hundreds of thousands. Still, nothing. Indeed, one national homebuilder staged a half-price sale in California one weekend last year. But, buyers weren’t budging.

Even with these deep discounts, buyers remained wary. They still weren’t convinced that California housing markets had reached bottom. Not, until government stepped in, that is. What happened when government acted to provide real tax relief was transformative, as the record shows. Amazing? Inexplicable? Maybe, and maybe not.

As California’s recession lingers on, maybe it’s time for our elected leaders to learn from history and repeat the things that work.