Whac-A-Mole, LIHTC Style, Take Three

Published by Michael Novogradac on Thursday, April 21, 2011 - 12:00am

NPR is running a piece today on the battle of budget words.  The theme of the article is the concept of tax expenditures.  Unfortunately, the article states that “tax credits cost the government $1.2 trillion a year.” The writer surely meant tax expenditures, which includes tax deductions, income exclusions and tax credits. Items like deductions for mortgage interest and charitable contributions, income exclusions for health care insurance, and tax credits for child care costs.  

Perhaps the writer was taking poetic license in referring to tax expenditures as tax credits.  He paraphrases a Syracuse University public affairs teacher’s comments that federal elected officials have a bias to create a new “tax credit or reduction” in lieu of direct spending and this bias has resulted in “tax credits [that] cost the government $1.2 trillion a year.”

Unfortunately, and the reason for this post, if you read quickly (or listen inattentively), it sounds like the NPR piece is saying that the LIHTC costs $1.2 trillion a year.  Actual current cost of the LIHTC is a tad less, about $5 to 6 billion a year, less than 1/2 of 1% of annual tax expenditures, and, by far, one of the smaller tax expenditures.