NORMAN — Leaders of the Senate Finance Committee have suggested wiping out all tax breaks not shown to either boost economic growth, make the tax code more fair or effectively promote other important policy goals.
Because the most costly tax breaks are so politically entrenched, lawmakers may focus instead on doing away with the smaller credits, deductions and exemptions. One that deserves to be preserved, however, is the comparatively small but vital credit for the construction of rental housing for the working poor.
The profusion of tax breaks collectively lower federal revenue by an estimated $1.3 trillion annually, and it’s worth exploring what the public gets in return. The Finance Committee’s leaders are trying to force lawmakers to do just that for each break in the code.
Such scrutiny has been applied to the Low-Income Housing Tax Credit several times since it was created in 1986. Lawmakers have maintained the credit because it has become the primary federal aid for new or rehabilitated affordable housing.
Each state is allocated about $2 in credits per resident, which state and local officials award as they see fit to projects that meet the law’s criteria for affordable rents.
Some critics have lamented the tax credit’s complexity and its per-capita allocation, which ignores how the inventory of affordable housing varies from state to state. But there’s no question that the credit has drawn far more private investment into affordable housing than it has cost taxpayers in lost revenue.
That cost — an estimated $6.4 billion in 2013 — pales in comparison with the cost of the preferential rates for capital gains and dividend income ($123 billion), the mortgage interest deduction ($76 billion) or the deduction for charitable contributions ($40 billion).
Nor is there any question that the housing tax credit has promoted an important federal policy, which is to make affordable housing available to lower-income Americans. Without the tax credits to lower their costs, developers would have little interest in building such units.