Low Income Housing Tax Credit Loophole

The Federal Government has a tax credit for the construction of low-income housing. Whatever its intentions, it is mostly used to transfer wealth into construction businesses and developers.

This NPR Report documents cases of outright fraud in Miami. Michael Cox, a repentant developer, calls it a kick-back scheme. Businesses would inflate their costs in order to maximize the tax credits. As far as we know, this is still going on.

Even with cleaner projects, the tax credit mostly gives wealthy developers a monetary benefit for projects they would have undertaken anyway. A study by Michael Eriksen and Stuart Rosenthal (2008) finds that nearly all financing using the tax credit displaces private investments.

Notice this direct contradiction of Eriksen’s and Rosenthal’s finding: “Eliminating the LIHTC would bring production and rehabilitation of affordable rental housing to a standstill.” I found this statement on the pages of the National Association of Home Builders. NAHB is a lobbying group.