Tax Policy for Economic Development/Affordable Housing

Finance: Tax Policy’s Role in Increasing Tax Tools for Local Economic Development, July 30, 2024

Do what’s right - human development:

Housing prices and incomes are again out of balance. Incomes are simply too low to make a mortgage payment for most Americans, particularly the working class (families making under $110,000 per year - the bottom 77% of population who receive only a third of total adjusted gross income).  Down payment assistance, whether through local grants or tax incentives, simply sets up people to fail. My family received such assistance, and neither our mortgage or our marriage survived the last housing bubble’s burst.  

As explained in the attachments, three things must occur:

• Raise the minimum wage (and let the effects flow through the working class,
• Pay peoples’ opportunity costs for seeking remedial education, college and job training by paying that minimum wage to do so, and
• Shift the award of unearned cost of living adjustments from an equal percentage to equal dollar amounts, starting with government employees and contractors.

Do no harm - oppose gentrification:

Too often, local development has had the effect - often intended - to remove minorities from an area that upper income Whites wish to colonize.  Historically, the placement of freeways was designed to destroy the Black middle class and neighborhoods. That torch was passed to local economic development, aka gentrification, for decades. Any incentives that support this which do not explicitly require human development and equitable housing in the same neighborhood must not pass and, where they already exist, be repealed.

Finance: Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families, March 7, 2023

Point One (was 2): Abandon the idea of tax incentives for development.

Urban renewal, which relocates poor and largely non-white people, leads to redevelopment that chases the 90th percentile. The tax incentives in the President’s budget are exactly the wrong approach. Instead, reform the entire tax system so that most families do not have to file income taxes. By most, I mean 99%. 

If an asset value added tax is adopted rather than capital gains taxes then other income taxes taxes could be replaced with goods and services taxes on consumption and subtraction value added taxes on net business receipts - so that wages and profits would be taxed at an equal rate, with higher income surtaxes for individuals who receive wages and/or dividends over the 90th percentile of income at graduated rates up to $450,000, with a top rate of 25% over the base rate. 

Income over $500,000 would be taxed between an additional 5% up to an additional 25%, with tax prepayment being an optional bond purchase for years in advance. If enough people or firms shift from holding marketable debt to tax prepayments, the debt can be reduced more rapidly and interest costs saved.

Point Two  (was 1): Housing is primarily an income issue.

The best cure for housing affordability is higher income. The President’s budget is on the right track regarding the Child Tax Credit. I would treble down on his amounts and distribute these funds through Old Age, Survivors, Disability and Unemployment Insurance payouts or with wages. Note that dependent children would only get the $1000 per month CTC.

Adult and Emancipated Juvenile Students, from ESL to Associates Degree, should be paid for pursuing their educations at a minimum wage level of at least $10 per hour (which had been the Republican counter-offer to a $15 wage). Take the deal and plan on an increase to $12 or just to $11 if the standard work week is cut to 28 hours - seven per day, not including lunch. Immigrant minors who have been trafficked to the United States and paroled to relatives or sponsors have had to go to work. Their only work should be education. No one should be brought in as a member of a permanent underclass!

The other income issue is how we distribute cost of living raises to government workers, beneficiaries, government contractors and in the private sector. While we cannot do much for the last one (except for offering paid education), the other three are firmly under government control.

The source of inequality, aside from abandoning the 91% top marginal tax rate, is granting raises at an equal percentage rather than by an equal amount. When this started, incomes were fairly equal, so it was not an issue. Fifty years later, the issue is huge, but not insurmountable.

From here on in, award raises on a per dollar an hour rather than on a percentage basis (or dollars per month or week for federal beneficiaries). Calculate the dollar amount based on inflation at the median income level. No one gets more dollars an hour raise, no one gets less dollars per hour in increases. Increase the minimum wage as above and consider decreasing high end salaries paid to government employees and contractors. Even without decreases, simply equalizing raises will soon reduce inequality. Why is this necessary?

Prices chaise the median dollar. The median dollar of income is actually at the 90th percentile, rather than the 77th percentile (which is about where the median is). This strategy would reduce inflation in both the long and short terms. 

Let me repeat this - prices chase income dollars, not income earners.

On the tax side, limit bracket indexing in the same manner - by dollars per bracket, not percentages.

Attachment: Affordable Housing   Part I Video  Part 2 Video