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Expanding federal housing tax credits would be the opposite of evidence‐​based policymaking.

AbstractThrough the lens of a multi‐agent dynamic general equilibrium model, we examine the effects of changes in preferential housing‐related tax treatments on macroeconomic aggregates and welfare. Our first finding is that financial frictions on banks contribute to lowering tax multipliers. The multipliers that we find are smaller over a horizon of 20 quarters—they range from to , while the long‐run tax multipliers range from to . We then find that the reduction in the deduction of mortgage interest payments delivers the lowest long‐run multiplier. We also implement revenue‐neutral tax reforms and find that the repeal of mortgage deductibility is the best housing tax policy because it generates small losses in output.

AbstractCentral issues in evaluating the Low‐Income Housing Tax Credit are cost‐effectiveness as the program stands; whether it adds to the supply of affordable housing; whether development costs of tax credit projects are reasonable relative to private, unsubsidized housing development; whether alternative means of achieving the objectives would be more efficient or be better targeted to lower‐income households; and the feasibility of replacing the program with a directly budgeted subsidy. Methodological requirements for the evaluation include developing clear relationships among government costs, transaction costs, investor returns, and net equity provided to a project.

This report discusses the low-income housing tax credit (LIHTC) program, which is one of the federal government's primary policy tools for encouraging the development and rehabilitation of affordable rental housing. These non-refundable federal housing tax credits are awarded to developers of qualified rental projects via a competitive application process administered by state housing finance authorities.

This report discusses the low-income housing tax credit (LIHTC) program, which is one of the federal government's primary policy tools for encouraging the development and rehabilitation of affordable rental housing. These non-refundable federal housing tax credits are awarded to developers of qualified rental projects via a competitive application process administered by state housing finance authorities.

THE LOW-INCOME HOUSING TAX CREDIT ELEMENTS AND OVERSIGHT ISSUES -- THE LOW-INCOME HOUSING TAX CREDIT ELEMENTS AND OVERSIGHT ISSUES -- Library of Congress Cataloging-in-Publication Data -- CONTENTS -- PREFACE -- Chapter 1: AN INTRODUCTION TO THE LOW-INCOME HOUSING TAX CREDIT* -- SUMMARY -- OVERVIEW -- THE ALLOCATION PROCESS -- Federal Allocation to States -- State Allocation to Developers -- Developers and Investors -- RECENT LEGISLATIVE DEVELOPMENTS -- End Notes -- Chapter 2: THE LOW-INCOME HOUSING TAX CREDIT PROGRAM: THE FIXED SUBSIDY AND VARIABLE RATE* -- SUMMARY -- INTRODUCTION

The Low-Income Housing Tax Credit (LIHTC) is an important source of federal funding for developers of affordable housing for low-income persons. Although for-profit and nonprofit developers compete for credits, the federal government reserves ten percent of the credits for nonprofit, tax-exempt developers. Exempt developers often sell the credits to for-profit investors, forming a partnership through which the exempt organization develops the housing and the investors receive tax benefits in exchange for capital contributions. The partnership formation, however, may jeopardize the tax-exempt status of the nonprofit organizations and result in the partnership losing the LIHTC. To maintain exempt status, the Internal Revenue Code requires that organizations be organized and operated to promote a charitable purpose and that no net earnings inure to private individuals. A combination of binding and non-binding authority provides confusing guidelines for exempt organizations seeking to protect their exempt status. This Comment examines the federal requirements for the award of LIHTC and traces the development and application of a two-prong test used by the Internal Revenue Service to determine whether partnership structures jeopardize exempt status. This Comment argues that exempt developers in LIHTC partnerships need binding authority that details the level of control of partnership activities the exempt organization must retain, provides an exception for certain partnership guarantees by exempt organizations that are standard within the development industry, and allows investors to receive private benefits to a greater degree without jeopardizing the organization's exempt status.

"The Low Income Housing Tax Credit (LIHTC) represents a novel tax expenditure program that employs "investable" tax credits to spur production of low-income rental housing. While it has grown into the largest source of new affordable housing in the U.S. and its structure is now being replicated in other programs, the LIHTC has also drawn skepticism and calls for its repeal. This paper outlines a conceptual framework for exploring the conditions under which investable tax credits may be the most effective mechanism to deliver a production subsidy and discusses the desirability of employing investable tax credits in other policy domains. Estimates of tax expenditures under this program are provided and efficiency costs, distributional issues, and the likely effects of reforms to tax provisions such as the AMT are considered"--National Bureau of Economic Research web site