From Our Current Newsletter
Tax (In)Equality and Housing
By Rick Nelson, AHI Board Chair
Many of us believe that the federal government only assists low-income people with their housing. A look at the facts, however, reveals that higher income households get most of this assistance. In 2004, households in the lowest 40% of income are expected to benefit from 27% of the federal government’s total housing assistance (direct outlays and the value of tax deductions) while the top 40% of households will get 61%.
The federal government provides housing subsidies differently depending on peoples’ income. Lower income households, particularly the bottom 20%, receive their housing assistance through public housing rental units, rent subsidies, and investor tax credits and low interest loans to create affordable housing. These programs have historically received broad bipartisan and public support. In a July 2003 poll, 82% of respondents said it was important that Congress provide adequate federal funding for housing low income people.
The other and much larger piece of the assistance story are the tax incentives built into the Internal Revenue Code. These incentives reduce tax revenue through income tax deductions. Essentially they’re a housing subsidy for the households who qualify for and take the deductions. These tax subsidies, naturally, have broad bipartisan support. When we file our annual income tax return, we can see how much we benefit from them.
In October, the National Low Income Housing Coalition (NLIHC) published an analysis of federal housing subsidies (available on the group’s website www.nlihc.org.) According to this study, 2003 direct federal housing outlays (dollars actually spent by the government) were $38 billion, while housing related federal tax subsidies were $121 billion. Most of these tax subsidies (87%) directly benefited homeowners through the tax savings from income tax deductions: mortgage interest – 51%, property taxes – 19% and 17% from the exclusion of capital gains taxes on home sales.
In the last 15 years, these tax subsidies have grown faster than the direct outlays. Using constant dollars to adjust for inflation, tax subsidies in 1981 totaled $81 billion while direct outlays totaled $28 billion. Since then, tax subsidies have increased by an inflation-adjusted 49% (to $121 billion) while direct outlays have increased by 37% (to $38 billion). As you can see, two thirds of all federal housing subsidies/assistance now go directly to homeowners as tax savings.
High-income taxpayers benefit the most from these tax subsidies since they can afford more expensive homes and pay more in taxes. The NLIHC estimates that, in 2004, 48% of the tax subsidies will go to the households in top 20% of income levels. At the other end of the income ladder, NLIHC estimates that households in the bottom 20 % of income levels will get 81% of the direct outlays.
Tax subsidies are an entitlement, while direct outlays are rationed. No politician has to vote to “approve” the dollar amount of tax subsidies. Any taxpayer qualifying for the deductions is able to include them on their tax return. Because of this 54% of households in the top 20% of income levels benefit from the tax subsidies. Direct outlays, on the other hand, are a part of the “discretionary” appropriations or funding process and can be cut or raised depending on government priorities. Over the past five years, federal housing funding has been tight and is actually projected to decrease over the next five years. As a result only 13% of the households in the bottom 20% of income levels (all of whom make less $18,500 annually) receive federal housing assistance.
According to recent report issued by Joint Center for Housing Studies of Harvard University “Fully half of the lowest income households spend 50% of their incomes on housing.” Alliance Housing has both subsidized and unsubsidized units. The larger sober supportive housing projects are subsidized. There, residents pay only 30% of their income for rent and utilities. Residents of the duplexes and smaller buildings typically receive no subsidies. As a result most of them pay much more than 30% of their income for their housing. AHI does its best to keep rents affordable, but every year costs go up, particularly property insurance, energy, and taxes. Since AHI can’t afford to pay all of these escalating costs, we must pass some of the costs onto residents and try and cover the balance through fundraising.
Although you may not have thought about mortgage and property tax deductions as a subsidy before, take a look at your tax savings, and consider joining me in using some of those savings to increase your support to AHI and help us keep rents affordable.
National Low Income Housing Coalition. 2003. Views of Housing Problems and Priorities: Results of a NLIHC Poll of Likely Voters. Washington D.C.
National Low Income Housing Coalition. 2004. Changing Priorities: The Federal Budget and Housing Assistance 1976-2005. Washington D.C.
Joint Center for Housing Studies of Harvard University. 2004. The State of the Nation’s Housing 2004. Cambridge, MA.