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POLICY INSIGHT
BEYOND THE NUMBERS

Tax Reform Offers Opportunity to Rebalance Housing Policy

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Senior Director for Housing Policy and Research and Interim Program Area Lead, Housing

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.
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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.