Congress should cut the budget deficit by eliminating the Low-Income Housing Tax Credit, says economist Adam Michel:
The Low-Income Housing Tax Credit (LIHTC) awards roughly $14 billion in tax credits annually to private apartment building developers in exchange for keeping rents capped for lower-income tenants. But far from being an effective solution to housing affordability, the LIHTC is a complex and costly form of corporate welfare. It is also a microcosm of what is wrong with the House-passed Republican tax bill, which expands the credit by 12.5 percent, one of at least 20 new or expanded tax subsidies.
A new bill from Representative Glenn Grothman (R‑WI) charts a more reasonable path. The Low-Income Housing Tax Credit Elimination Act proposes repealing the housing credit….The credit inflates construction costs, crowds out market-based development, and funnels most of its benefits to investors and developers instead of renters….Chris Edwards testified before the House Oversight Committee. He lists five problems with the program:
Complexity. The LIHTC has spawned a compliance industry of lawyers, accountants, and consultants. The statute, IRS regulations, and compliance guides span more than 2,000 pages, entailing huge bureaucratic overhead.
High costs. Due to unnecessary rules, fees, and bureaucratic delays, LIHTC-financed projects often cost 20 to 40 percent more per unit than comparable market-rate developments.
Fraud and corruption. With minimal oversight, the program is ripe for abuse. Because state and local officials have discretion in awarding credits, it has been associated with numerous scandals involving public officials and politically connected developers.
Doesn’t help renters. Statistical studies suggest that as much as two-thirds of LIHTC benefits are captured by investors and developers, rather than tenants, through lower rents.
Crowd out. Rather than expanding the overall housing supply, LIHTC projects often displace or delay private construction that would have happened anyway, adding costs without adding new housing units.
