Tax Policy for Affordable Housing

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

Point 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.

Point Two: 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.

Attachment: Affordable Housing   Part I Video  Part 2 Video