Tax Reform Offers Opportunity to Rebalance Housing Policy

September 3, 2013 at 11:55 am

Lawmakers considering federal tax reform proposals should take this opportunity to rebalance housing subsidies to better align spending with need, as I recently explained on the National Housing Institute’s Shelterforce blog.

The federal government spent $270 billion in 2012 on tax breaks and direct spending to help families buy or rent housing.  But most of that spending was on homeownership subsidies — like the mortgage interest deduction — that mainly benefit higher-income families, who would rarely struggle to afford homes without help (see chart).  Meanwhile, the number of low-income families — especially renters — paying very high shares of their income for housing has grown rapidly.

As I explain in the post, Congress should take two steps as part of tax reform to rebalance the nation’s housing policy:

  • Replace the mortgage interest deduction with a less-expensive, better-targeted credit. This would trim subsidies for higher-income families while expanding them for middle- and lower-income homeowners, many of whom receive little or no help from the existing deduction.
  • Create a renters’ tax credit. As our updated paper explains, Congress could use some of the savings from reforming homeownership or non-housing tax subsidies to fund a new renters’ credit that would address part of the unmet need for housing assistance among the lowest-income renters.  A renters’ credit capped at $5 billion, for example, would help about 1.2 million vulnerable households, reducing their rent by an average of $400 a month.

Click here to read the full post.

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More About Will Fischer

Will Fischer

Fischer is a Senior Policy Analyst, focusing on federal low-income housing programs, including Section 8 vouchers, public housing, and the Low-Income Housing Tax Credit.

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5 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Mark #

    Yo, you say $270 billion next to a chart that accounts for some $130 billion. Confusing much? Why don’t your numbers add up?

    • Will Fischer #

      As I mentioned in my response below, the $270 billion covers all housing tax expenditures and direct spending, while the numbers in the graph only include those for which income breakdowns are available. The expenditures included in the graph (which are listed in the notes) account for about half of federal housing spending.

  2. Conrad Egan #

    Well and persuasively and clearly done, Will.


  3. 4

    I wondered where the $270 billion is on the left chart. I see the $s only add up to about $143 billion. Can you tell me what is missing from the left chart? Or if I am reading it wrong? Thanks.

    • Will Fischer #

      The $270 billion covers all housing tax expenditures and direct spending, while the numbers in the graph only include those for which income breakdowns are available (which are listed in the note below the graph). The expenditures included in the graph account for a little over half of federal housing spending. The largest expenditures it omits are on the tax side, including the exclusion of capital gains from certain home sales, exclusion of net imputed rent, the Low-Income Housing Tax Credit, and exemption of some rental income from passive loss rules. It also leaves out several smaller direct spending programs, including rural housing and HOME.

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