During this season of presidential politics, proposed economic stimulants, peace dividends and romancing the middle class, an important but little-known tax provision for the poor slowly winds its way through Congress.
This tax provision, the Low-Income Housing Tax Credit, has been like the little engine that could. Each year it has struggled mightily to get up the hill to be enacted on a permanent basis. Each year since 1989 it has been extended for shorter periods of time; first for one year, then nine months, most recently for six months. Each year since 1989 it has had the full bipartisan backing of a vast majority of the Senate and the House, as well as the backing of the administration.
Yet each year it has been a pawn to other political concerns, and has either been cynically packaged with the capital-gains tax reduction, or been listed as the last item -- after all other spending was finished.
What exactly is this tax credit and whom does it serve? Perhaps therein lies the rub.
Originally enacted as part of the Tax Reform Act of 1986, it allows private investors to receive a credit against federal income taxes in return for their investment in the acquisition, rehabilitation or construction of rental housing for low- income people. They get credits over 10 years only if the projects work.
This has worked splendidly to attract private financing into multi-family housing. Each multi-family unit serves families with incomes below 60 percent of the area median. Rents for a unit developed by the tax credit vary from region to region, but the average is less than $450 a month for a family of four.
At a time when a growing number of Americans are homeless or paying burdensome amounts of their income for sub-standard housing, this program is an important long-term answer: low-cost, decent, affordable rental housing.
Renters usually rent because they don't have enough income to own a house. Their median income is half that of home owners. But there is a tremendous gap between the millions of families who need affordable rental units and the number available.
Right now, the Low-Income Housing Tax Credit accounts for over 94 percent of all the affordable rented units being produced in the country today -- an average of more than 100,000 units each year since 1988. This is much more than the Department of Housing and Urban Development produces in public housing.
In addition to the housing itself, each tax-credit project also produces jobs and earnings and stimulates the economy where it is most needed -- in the inner cities, typically through small developers, contractors, subcontractors and suppliers. In Maryland, more than $27 million has been invested since 1987, each dollar leveraged significantly with other money, to help produce 8,911 units of housing and the attendant economic spin off.
The Low-Income Housing Tax Credit program works. It has tremendous bipartisan backing. It creates jobs and stimulates the economy. It serves those most in need. To these, let me add three other points:
* Permanent extension of the tax credit is sound short- and long-term housing policy. This flexible program produces only a small part of the low-cost rental housing projects needed in this country, but it is responsible for almost ALL such housing currently being produced.
* Permanent extension is compassionate and cost-effective. Congress is making an investment and helping those who need it most. For most of these families, Congress will not have to pay for more shelters, health care costs, prisons, crime and lost opportunity.
* Permanent extension is equitable. Tax policy has historically and successfully encouraged home ownership, primarily through the mortgage-interest deduction and property-tax deduction. The Low Income Housing Tax Credit is the ONLY measure which helps those who cannot afford home ownership. The price of extending this provision, about $3.3 billion over five years, is annually less than 1 percent of the cost of home owner's deductions, the great majority of which go to families with incomes many times those of renters.
Congress should stop playing with this provision on a year-to-year basis. Regardless of the political season, the Senate should follow the House, and make this provision permanent. It
would be a tangible peace dividend.
Bart Harvey is vice chair of the Enterprise Foundation.