tax credit

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.”

‘Tax Cuts’ and Welfare Spending

A story in the Washington Post today is headlined: “Obama Would Keep $85 Billion in Tax Breaks for Working Poor.”

The “tax breaks” in question are expansions in the earned income tax credit and the child tax credit. The Post story repeatedly calls the expansions “tax breaks” and “tax cuts.” The budget expert quoted in the story calls them “tax cuts,” and so does a House staffer and a spokesperson for the president.

Michelle Rhee and Eva Moskowitz on School Choice

Rhee, the former chancellor of DC Public Schools, and Moskowitz, head of a NYC charter school, were asked at an event last week what they thought of the Supreme Court decision upholding  Arizona’s K-12 scholarship donation tax credit program. The program offers a dollar-for-dollar tax cut to anyone who donates to a non-profit Scholarship Tuition Organization (and the STOs then help families pay for private school tuition).

Vermont Could Save Millions with Private School Choice

The Ethan Allen Institute has just published a report suggesting that Vermont could save $80 million a year by voucherizing its education system. What’s most interesting is how generous the prospective vouchers would be: $10,000 for K-6, and $14,900 for grades 7-12. How could such a system save money? The main reason is that Vermont was already spending $14,000/pupil on public schools across all grades four years ago.

Homeownership Myths

In a recent Washington Post op-ed, Professor Joseph Gyourko, chair of the Wharton School’s Real Estate Department, lists what he sees as the five biggest myths about homeownership. Given the central role of federal housing policy, particularly Fannie Mae and Freddie Mac, in our recent financial crisis, it is worth following Professor Gyourko’s suggestion and question whether a national policy of ownership, all the time for everyone, really makes sense.

Subscribe to RSS - tax credit