Category Archives: tax reform

Renters’ agenda

fair housing, housing, housing crisis, housing subsidies, housing vouchers, income inequality, mortgage-interest deduction, renters, Section 8, segregation, tax policy, tax reform, Vermont, , , , , ,

The Center for American Progress has put out a report that nicely ties together, in summary fashion, the current status of fair housing and unaffordable housing. These are the mainstay, overlapping concerns of the “Thriving Communities” campaign. If you’re looking for a fairly brief (33 pages) treatment of where things stand, complete with an array of federal policy recommendations, “An Opportunity Agenda for Renters” is worth a look. rent2

The report touches on many of the topics we’ve mentioned in this blog — the persistence of racial and socioeconomic segregation, the barriers to mobility from impoverished to high-opportunity areas, the growing financial burdens on the growing class of renters in the face of woefully insufficient public subsidies.

One of the policy recommendations, naturally, is that the primary federal vehicle for creating or preserving affordable housing be expanded. That’s the Low Income Housing Tax Credit, which accounts for about 110,000 residential units a year, according to the report. But even if that program were increased by 50 percent, as called for by the Bipartisan Policy Center’s Housing Commission, the total number of units created or preserved would still be way too few, considering “the current shortage of 4.5 million units that are affordable to extremely low-income households.”

As things stand, the federal tax code benefits homeowners in several ways, and disproportionately the wealthier ones. The mortgage-interest tax deduction alone costs the government about $70 billion a year. By contrast, increasing funding of the Section 8 program to cover 3 million eligible low-income renters who are shut out of the program now would cost just $22 billion.

Here’s another proposal in renters’ favor: creating a federal renters’ tax credit. A modest tax credit benefiting the lowest income renters could cost a mere $5 billion.

Vermont’s renter rebate is better than nothing, but it still doesn’t go very far. In 2012, according to a 2014 report to the Legislature, 13,541 claimants (about one-fifth of the state’s renting households) received a total of $8.7 million in rebates, for an average of $641. That $641 was not enough to unburden the typical claimant.

“On average,” the report stated, “Vermont’s renter rebate program reduces gross rent as a percent of household income from 36.7 percent to 33.6 percent.” rent1

In other words, the average renter was living in an unaffordable place even after the rebate.

 

Tampering with the sacrosanct

affordable housing, economic growth, elected leaders, home ownership, housing crisis, housing subsidies, middle class, mortgage-interest deduction, renters, tax policy, tax reform, , , , , , ,

The presidential candidates have a lot to say about tax reform, but with one exception, they’re not about to get rid the big sacred cow — the mortgage-interest deduction, found on Schedule A of Form 1040:scheduleA (2)

Economists have been complaining about the mortgage-interest deduction for years. It’s a regressive benefit, increasing with income. It enhances inequality, effectively inflates property values and misallocates resources, or so the argument goes. In 2012, the mortgage interest deduction cost the federal government $70 billion, according to the Urban Institute, compared $36 billion for low-income housing subsidies.

But nobody expects that deduction to go away any time soon. It’s a firmly entrenched loophole (aka “third rail”) not only for the wealthy elite, but for the simple majority. The home ownership rate in this country exceeds 60 percent (in Vermont, it’s over 70 percent), and of course the lion’s share of those people are mortgage-holder beneficiaries. IRS2

The ranks of renters are increasing, though, and the more they do, the more seriously they might be taken as a political constituency. Politicians take renters seriously in Germany, where renters are in the majority and the regulatory climate is much more in their favor. Germany doesn’t offer a mortgage-interest deduction, either.

Might the growing numbers of American renters be mobilized to support the elimination of the mortgage-interest deduction — which ostensibly doesn’t benefit them anyway — in favor of increased housing subsidies for low- and moderate-income tenants? That seems like a stretch, unless another Occupy-style movement sweeps the country.

Well, if eliminating the mortgage-interest deduction discourages home ownership, so be it. There’s even evidence that home ownership isn’t necessarily such a wonderful thing, because it damages labor markets:

“We find that rises in the home- ownership rate in a U.S. state are a precursor to eventual sharp rises in unemployment in that state,” write economists David Blanchflower and Andrew Oswald, in a 2013 paper. Why? Partly because higher rates of homeownership curtail labor mobility and lead to longer commutes.

So, who’s the exception among the presidential candidates? Ben Carson. bencarson He’s the only one who has said he’d do away with the mortgage-interest deduction. (Even Bernie Sanders doesn’t go that far – he’d cap it at $300,000.) For a full-throated defense of this Carson stance from someone who doesn’t agree with much of anything else he says, click here.