February 1, 2013
by Wilhelmina A. Leigh, Ph.D.
remarks given at the Howard University Fourth Annual African American Economic Summit
Legislation in the 1930s established the nation’s housing goal as decent, safe, sanitary housing that is affordable for all. Over the decades since the declaration of this goal, however, the nation’s housing policy problem has remained how to narrow the gap between household incomes and housing costs. This gap, in fact, increased between 1960 and 2008 (before the subprime mortgage market collapsed) for both renters and owners. Other methods than those heavily relied on to date should be considered and funded to help address this enduring housing problem and achieve our national goal.
The tool kit of options to narrow the gap between household income and housing costs contains three types of approaches. If we choose the first approach, we accept both household incomes and housing costs as fixed and use various financing mechanisms to bridge the gap between them. These mechanisms include mortgage loans made by financial institutions and mortgage market products developed and sold in the secondary market by Fannie Mae, and Freddie Mac. The subprime mortgage market collapse and The Great Recession have shown us the worst case outcome associated with these activities. The second approach involves accepting the cost of housing as fixed and increasing household incomes as a way to narrow the gap. This approach is most often applied via the tax system with deductions and credits that increase income in ways that benefit the wealthy more than the poor. The third approach requires us to accept that household incomes are fixed and involves modifying the cost of housing production as a way to decrease its cost. Examples of programs that use this third approach include Habitat for Humanity and the Nehemiah housing program (currently operating in New York City). If we target this core housing problem by bringing to scale tools that reduce the cost of housing by reducing its production costs, we will be able to assist more households to become homeowners in a sustainable and affordable manner.
In this “zero-sum” era, how can we afford to take this approach to scale? We can do so if we reduce the amount of tax revenue that the federal government chooses not to collect via the mortgage interest deduction on the federal personal income tax form. Collecting as federal revenue some of the $100.9 billion in tax expenditures (estimated for FY 2013) from this deduction and using it to expand programs that close the gap between household income and housing costs in a sustainable manner should be high on our nation’s “to do” list.
Wilhelmina A. Leigh is Senior Research Associate of the Economic Security Initiative of the Civic Engagement and Governance Institute at the Joint Center for Political and Economic Studies. More information on Dr. Leigh and her work can be found at the Joint Center website.
June 11, 2012
By Melissa Wells
Assets and savings help families weather economic downturns and unexpected financial crises. The President’s budget continues a longstanding federal approach to asset building. According to the recent Assets Report released by New America Foundation, the President’s FY 2013 budget provides nearly $548 billion to support asset-building activities and policies. However, middle and upper-income families, rather than low-income families, reap the lion’s share in benefits from federal policies that support asset-building and savings, especially through tax subsidies.
Tax subsidies account for 92 percent of federal spending on asset-building in the President’s FY 2013 budget. Of the nearly $508 billion provided in tax spending, $478.5 billion is provided for policies that primarily benefit upper-income households, such as the mortgage interest deduction, deductions for contributions to retirement accounts, and exclusions for capital gains. For example, at least 89 percent of mortgage interest deductions and 77 percent of IRA tax subsidies accrue to households that earn more than $75,000 per year, while these households constitute only 31 percent of all households in the country. Low-income and poor households typically benefit from tax policies that receive considerably less funding, such as post-secondary education tax credits and deductions, which are allocated only $28.93 billion in funds in the budget.
Although low-income and poor households benefit less from tax subsidies than do middle- and upper- income households, they do benefit more from direct spending to support savings and investment, homeownership and post-secondary education. The largest portion of direct spending to build assets is for Pell Grants ($36 billion), a post-secondary education program that provides financial resources for low-income college students. In addition, $1.19 billion is allocated to programs that prevent foreclosure and subsidize mortgage down payments for low-income households. An additional $602 million is provided to support entrepreneurship through microloan and small business lending, both of which contribute significantly to small business development and in turn can support job creation. A meager $52 million supports savings and investment through the Assets for Independence program, the Bank On USA initiative and the Volunteer Income Tax Assistance (VITA) program. These programs provide direct services that link low-income and poor households to financial literacy and tax preparation resources. But, again, the sum total of these programs is only a small fraction of the sum total of direct and tax expenditures aimed at asset-building.
The disparity in access to federal asset-building resources limits economic opportunity for low-income populations. Ensuring low-income households have access to asset-building programs is important because these programs can make it possible to purchase a home, retire with financial security, or send a child to college. As such, the Administration should consider not only how to make existing asset-building programs serve more low-income households but also how to develop new programs that can more effectively help them save and develop assets.
Melissa Wells is Policy Assistant, Asset-Building at the Civic Engagement and Governance Initiative of the Joint Center for Political and Economic Studies.