downsizing government

Low Income Housing Tax Cronyism

The Low Income Housing Tax Credit (LIHTC) is a federal program that subsidizes the construction of housing for poor tenants. The $8 billion program suffers numerous failures, as discussed in this study. One problem is that the program’s subsidies may flow more to developers and financial institutions than to the needy population that is supposed to benefit.

National Public Radio investigated the LIHTC for a show aired yesterday. The joint investigation with PBS found that the program has “little federal oversight” and is producing “fewer units than it did 20 years ago, even though it’s costing taxpayers 66 percent more.” The investigation discovered that “little public accounting of the costs exists, even among government officials and regulators charged with monitoring the program.”

Here’s how the program works:

Every year, the IRS distributes a pool of tax credits to state and local housing agencies. Those agencies pass them on to developers. The developers then sell the credits to banks and investors for cash. Often, to find investors, developers will use middlemen called syndicators. The banks and investors get to take tax deductions, while the developers now have cash to build the apartments.

With lots of groups on the federal gravy train—state and local housing bureaucracies, developers, banks, syndicators, and investors—the LIHTC program has fortified itself politically. Developers apparently take a 15 percent cut on the total value of housing projects, while syndicators earned more than $300 million in fees last year.  

Some share of LIHTC subsidies disappear in corruption and fraud. NPR profiles a Miami-area criminal enterprise led by Biscayne Housing and Carlisle Development Group, which is “one of the country’s top affordable housing developers.” The companies stole $34 million from 14 LIHTC projects. Biscayne’s former head Michael Cox admits, “It was a construction kickback scheme … The scam was to submit grossly inflated construction numbers to the state in order to get more money than the project required and then have an agreement with the contractor to get it back during construction.”

Mulvaney’s Plan to Reform the Government

President Trump’s Office of Management and Budget (OMB) has released a “Comprehensive Plan for Reforming the Federal Government and Reducing the Federal Civilian Workforce.” The 14-page memo from OMB director Mick Mulvaney creates a process for executive branch leaders to produce a detailed plan to cut the government. The final plan will be included in the fiscal year 2019 budget a year from now.

Wasteful Spending for Trump to Cut

Presidential candidate Donald Trump says that he will balance the federal budget while also cutting taxes. Given that the gap between federal spending and revenues is more than $500 billion and rising, he is going to need lots of spending cuts to make that happen.

In his big speech last night Trump said:

We are going to ask every department head in government to provide a list of wasteful spending projects that we can eliminate in my first 100 days. The politicians have talked about this for years, but I’m going to do it.

That’s great. Here are 10 “wasteful spending projects” (with annual costs) that Trump should put in his 100-day elimination plan:

  • Farm subsidies, which enrich wealthy landowners and harm the environment, $29 billion.
  • Energy subsidies, which have been one boondoggle after another for decades, $5 billion.
  • The war on drugs, which wastes police resources and generates violence, $15 billion.
  • Federal aid for K-12 schools, which generates huge bureaucracy and stifles innovation, $25 billion.
  • Excess pay for federal workers, especially gold-plated retirement benefits, which should be cut 10 percent to save $33 billion.
  • Housing subsidies, which distort markets and damage cities, $37 billion.
  • Community development and rural subsidies, which is corporate welfare used for buying votes, $18 billion.
  • Urban transit and passenger rail funding, which is properly a local and private responsibility, $15 billion.
  • Obamacare exchange subsidies and Medicaid expansion, which should be repealed along with the overall law, $200 billion a year by 2023.
  • TSA airport screening, which Trump said last night is “a total disaster,” and which should be devolved to local and private control, $5 billion.

Self-Serving Federal Bureaucrats

In the federal government, employees are paid to faithfully execute the laws, but they often pursue self-serving goals counter to those of the general public. Unionized federal workers actively oppose legislators who support reforms. Agency leaders try to maximize their budgets by exaggerating problems in society. They leak biased information to the media to ward off budget cuts. They put forward the most sensitive spending cuts in response to proposed reductions, which is the “Washington Monument” strategy.

Heritage Immigration Study and Government Spending

Conservative and libertarian scholars are clashing over the findings and political implications of the new Heritage Foundation immigration study. The study spans 92 pages and is jam-packed full of statistics and detailed calculations.

I’ll leave the immigration policy to my colleagues who are experts in that area. To me, the study provides a very useful exploration into how massive the American welfare state has become. Here are some highlights:

‘Unthinkable, Draconian’ Spending Cuts

It’s my job to advocate for spending cuts. It’s a job I’ve been doing in one form or another for over a decade. If I’ve ever experienced a victory, it must have been a pretty small one, because I can’t recall any.

So why do I persist?

Six Reasons to Downsize the Federal Government

1. Additional federal spending transfers resources from the more productive private sector to the less productive public sector of the economy. The bulk of federal spending goes toward subsidies and benefit payments, which generally do not enhance economic productivity. With lower productivity, average American incomes will fall.

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