An analysis of the allocation of the low-income housing tax credit
Hopkins, John D.
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Since the passage of the National Housing Act in 1937, Congress has been dedicated to increasing the supply of "affordable" low-income housing. At different points in time over the past 57 years, public housing programs as well as various demandand supply-side incentives for private investment have been used as the means to achieve this goal. The Low-Income Housing Tax Credit (LIHTC) is the latest supply-side program to use tax incentives to stimulate the development of low-income housing by the private sector. When the LIHTC was written. Congress incorporated several secondary goals into its structure. These secondary goals include tying the amount of the subsidy directly to the low-income units provided by the property, substantially reducing the maximum qualifying income level for tenants, setting a maximum gross rent on units receiving the credit, and creating a new allocation process for distributing the tax subsidy to applicants. The LIHTC is structured to encourage the rehabilitation and construction of low-income housing units with rent restrictions. Owners of low-income housing projects allocated the LIHTC are entitled to an annual credit for ten years. Over the first ten years of the tax credit program, annual allocations of the credit have totaled over $3.2 billion, and these aimual allocations will reduce federal revenues $32 billion. The LIHTC, originally created as a temporary provision of the Tax Reform Act of 1986, was made a permanent part of the Internal Revenue Code by the Revenue Reconciliation Act of 1993. Congress took this action in spite of the program's negative impact on tax evenues and concerns that the LIHTC program might not be meeting the goals set by Congress.