The following is a guest post by Alex Dodds, Online Communications Manager, Smart Growth America.
The home mortgage interest deduction turns 100 years old this year. Is it still doing the most it can for American families and taxpayers?
Smart Growth America recently examined the federal government’s involvement in the real estate market and its impact on homeowners, renters and communities across the country. The new report, Federal Involvement in Real Estate: A call for examination, surveys 50 federal real estate programs to better understand where this money goes and how it influences development in the United States. The spending examined in the report’s analysis includes tax expenditures, loan guarantees, and low-interest loans and grants – totaling $2.23 billion in federal spending over the five year study period.
This involvement has an enormous impact on the U.S. real estate market, and even a cursory analysis reveals this impact is uneven. Outdated programs and lack of coordination across agencies contribute to this imbalance, the report explains. As a result, many federal programs are not targeted to those most in need, are not targeted to strengthen existing communities and are not targeted to create more places with economic opportunities.
The mortgage interest deduction (MID) is one example of a program that deserves to be reexamined. The MID costs an average $80 billion annually and is meant to increase rates of home ownership. It can be claimed by homeowners, but only by households that itemize their taxes. The deduction is claimed significantly more by higher income households because of the required itemization.
There is no similar support for homeowners that do not itemize their taxes (often middle class households) or for renters. Compounding these challenges, the deduction may also be taken on second homes – possibly making it even tougher for families still working to afford their first.
This is just one of the many expenditures and commitments outlined in the new report as needing review. The National Low Income Housing Coalition has called for similar examination of federal real estate programs – and these two organizations aren’t the only ones.
The U.S. Government Accountability Office (GAO) recently released Tax Expenditures: Background and Evaluation Criteria, a report that looks at the efficacy of all federal tax expenditures and programs, and proposes developing a framework for evaluating them. Most tax-expenditures – including the MID – are not systematically monitored or routinely examined to determine if they are still achieving their intended purpose.
The GAO report suggests five questions to ask to gauge a tax expenditure’s value. Those questions are similar to Smart Growth America’s recommended criteria to evaluate programs by:
- Support balanced housing choices in suburbs, cities and rural towns.
- Reinvest in America’s existing neighborhoods and communities.
- Provide a safety net for American families.
- Help more Americans reach the middle class.
Congress is approaching the end of FY13, and discussion of next year’s budget will soon begin. As members on both sides of the aisle look for ways to be more effective with taxpayer dollars, now is the time to reexamine these federal programs.
Smart Growth America is asking allies and advocates to join the call for an examination of federal real estate spending. These programs could be helping communities grow stronger and families more prosperous — in addition to achieving their primary goals — but Congress will need to take action in order for that to happen.
Smart Growth America and the National Low Income Housing Coalition both want to help families find homes that are affordable and within healthy neighborhoods. The federal government’s investments in real estate development have huge implications for this work, and the work to examine these programs needs to begin now.
NLIHC welcomes guest posts from individuals and organizations with something to say about low income housing policy. Contact email@example.com if you’d like to submit a post.