Three Reasons Congress Should Preserve the Low-Income Housing Tax Credit

Published by Michael Novogradac on Wednesday, July 24, 2013 - 12:00am

On June 27, Senate Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Orrin Hatch, R-Utah, proposed a “blank-slate” approach as a legislative starting point for tax reform. In a “Dear Colleague” letter they called on their Senate colleagues to submit legislative language or detailed proposals by July 26 for which tax expenditures and other provisions should be added back to a reformed tax code. In the letter, Sens. Baucus and Hatch write that they “both believe that some existing tax expenditures should be preserved in some form” but that tax expenditures and other provisions should be added back only if they: help grow the economy, make the tax code fairer, or effectively promote other important policy objectives.

So as the July 26 deadline nears, let’s consider why a reformed tax code should include the low-income housing tax credit.

1. The LIHTC helps grow the economy.

In “The Local Economic Impact of Typical Housing Tax Credit Developments,” the National Association of Home Builders estimates the estimated one-year local impacts of building 100 apartments in a typical family tax credit development include:

  • $7.9 million in local income,
  • $827,000 in taxes and other revenue for local governments, and
  • 122 local jobs.

The additional, annually recurring impacts of building 100 apartments in a typical family tax credit development include:

  • $2.4 million in local income,
  • $441,000 in taxes and other revenue for local governments, and
  • 30 local jobs

2. The LIHTC makes the tax code fairer.

Substantially all of the net economic benefit of the LIHTC goes to low-income families. As explained in more detail in “The Importance of Tax Expenditures’ Distributional Impact,” if the LIHTC was repealed, about 100,000 affordable housing rental units a year wouldn’t be built. Over five years, about 500,000 low-income families would be adversely affected.

In fact, the program has succeeded in serving tenants at incomes significantly lower than the federal requirement. While income limits for the LIHTC program are set at 50 or 60 percent of area median income (AMI), in “What Can We Learn about the Low Income Housing Tax Credit Program by Looking at the Tenants?” the Furman Center for Real Estate and Urban Policy, New York University found that approximately 60 percent of LIHTC property residents have incomes at or below 40 percent of AMI. According to the report, only 20 percent have incomes at or above 50 percent of AMI.

3. The LIHTC effectively promotes other important policy objectives.

The LIHTC is the singular center piece of national federal supply side housing policy.  It provides affordable rental housing to low-income families across the country.

Furthermore, the administration of the LIHTC by state agencies that allocate tax credits according to the housing needs of that state allows the LIHTC program to also support other policy objectives such as:

As you can see from the analysis above, the LIHTC clearly satisfies each of the three criteria suggested by Senators Baucus and Hatch for inclusion in a reformed tax code.

Do you have additional thoughts on the three points outlined above?  If so, please post a comment below.