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A Critical Credit

February 6, 1998



For all its boggling complexity, the federal income-tax system occasionally lends itself to policymaking brilliance. One such occurrence came in the mid-1980s, when the low-income housing tax credit was born.

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The credit appeared just as traditional sources of direct funding for such housing were disappearing. In the years since, the sale of these tax credits to corporations has generated some $2.5 billion in new housing for low-income families. It has been a key element in efforts to revitalize inner-city neighborhoods. Without it, local development corporations would be hard put to find money for the typically low-margin work of building homes for the poor.

But the value of the credit has been eroded by inflation. President Clinton now proposes the first move to catch up since the program got under way in 1987. His plan to increase the credit by 40 percent would cost $1.6 billion over five years in lost tax revenue. That relatively modest federal investment could finance more than 30,000 new, affordable rental units yearly - at a time when 5 million low-income American families are devoting more than 50 percent of their incomes to rent.

The credits are allocated by the states to local housing developers, often nonprofit organizations. These developers, in turn, sell the credits to corporations who use them to reduce their tax liabilities. The corporations who buy the credits, however, can realize their full value only if the housing they're helping to finance is well maintained for at least 15 years.

Hence the program has built-in protections against the decay all too common in urban housing projects. At the same time, it fosters partnerships between the business community and housing advocates. And it encourages housing decisions at the local, neighborhood level, where the needs are best known.

The poltical outlook for expanding the tax credit hinges on its inclusion in a tax bill this year. Two bills to expand the credit have already been filed in Congress. Bipartisan support exists, and a report by the General Accounting Office last year underscored the effectiveness of the credit.

There may be objections from those who want a simplified tax code. We sympathize with their goals. But this is one tax-code mechanism that's doing critical work for society. It should be strengthened and fully employed.