Issue #151, Fall 2007

Credit Where Credit is Due

The Earned Income Tax Credit is a valuable tool for fighting poverty, but it can't solve the nation's low-income housing problems.

By Barbara Sard

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I wholeheartedly agree with Peter Dreier that housing activists should join with others to support policies that would lift the working poor (and other poor people) out of poverty. I also agree that the widening gap between incomes and housing costs is by far the nation's most prevalent housing problem, and that reducing the number of families with unaffordable rent burdens must be a top priority. Shifting from the current world of constant, difficult battles for (at best) small incremental gains to a future of virtually automatic funding on a broad scale through the tax code has obvious appeal. What committed housing activist would not want to provide "housing assistance" to hundreds of thousands - or even millions - of additional households with no apparent trade-offs in funding available for other housing programs?

But as Barney Frank is fond of saying, I would also like to be able to eat whatever I wanted and not gain weight. Unfortunately, life doesn't work that way. Tax-policy changes are not a panacea for our current low-income housing problems, even if there were the political will to make the substantial new investments Dreier recommends. For reasons I'll explain briefly below, adding a housing supplement to the EITC - if it could be accomplished - would help ameliorate housing cost burdens of a significant number of households, but it would not address our most serious housing problems or advance other housing-related goals.

Is a housing supplement to the EITC an effective and efficient way to reduce housing problems?

To state the obvious, increasing the amount of money that families receive through the EITC will give them more income, and thereby reduce housing costs as a share of income (or enable families to move to better housing). The anti-poverty plan developed by the Center for American Progress (CAP), which Dreier notes, includes recommendations to increase the EITC benefits available to childless workers and to families with three or more children, as these two groups now receive less adequate benefits than smaller families with children. Households without children and large families also happen to have a higher incidence of housing-cost problems than families with one or two children. This proposal by CAP (and others), which already has substantial support, may achieve as much - or more - for these two groups than a housing supplement spread across all EITC households. In terms of forging political alliances, it may make more sense for housing advocates to support this proposal than a more expensive and less targeted housing-focused alternative.

Moreover, it is not at all clear that it is feasible to design a housing supplement to the EITC that has the two key features that Dreier acknowledges would be critical: a benefit amount that varies with local housing costs and that is payable monthly. The proposal by Michael A. Stegman and his colleagues to increase the EITC to address housing costs rejected the idea of adjusting the amount of the credit based on local variations in housing costs as too administratively burdensome. (Another tax-related proposal by John Quigley of U.C. Berkeley might better address this problem as well as other limitations of an EITC housing supplement, but it may not have the political attractiveness of the EITC.)

My colleagues at the Center on Budget and Policy Priorities, who have decades of experience working on EITC outreach, are highly skeptical that the EITC could be transformed into a monthly payment system for a significant portion of EITC recipients. In addition to the barriers created by lack of awareness and employer resistance, they note that workers often are not particularly interested in receiving monthly advance payments. Many fear being dunned for an overpayment if their incomes or family circumstances change during the year, and many families like to get a lump sum tax refund to meet major one-time costs.

If an EITC housing supplement is based on national housing costs and payable annually, it could still make a major contribution to closing the housing affordability gap, particularly for moderate-income households and homeowners (versus renters). Indeed, it is possible that if incomes continue to stagnate while housing costs increase, a housing-cost-based rationale for increasing EITC benefits could become an effective argument with broad-based support.

But it is vital that housing activists understand that this would be a housing-based rationale rather than a housing solution for households with the most serious housing problems.

Why do housing vouchers better address the housing problems of the poor than an EITC increase?

Because housing vouchers are not limited to those with earnings, they can help address the housing problems of the elderly and people with disabilities that will not benefit from a housing supplement to the EITC. (Among those excluded from an EITC-based benefit are families with children headed by a person who is elderly or has disabilities, who now make up 9 percent of the households receiving housing vouchers.) For those in the labor force, housing vouchers act as a safety net: When income decreases because of the loss of a job or cut in work hours, the subsidy amount increases so that the rent is paid. In contrast, the EITC is designed primarily as a work incentive, so benefits typically increase for the working poor as earnings increase and decline if earnings are reduced due to fewer months or hours of work.

Housing vouchers also are a better anti-homelessness tool than an EITC housing supplement. An individual or family can get a voucher when they are unable to work or work steadily due to lack of a stable place to live. Most important, a voucher pays enough to enable a household with very little income to access housing. Even a housing-EITC benefit of $300 a month - which would more than double the current average EITC benefit - may not be sufficient to enable low-wage working families who are homeless or doubled-up to get housing of their own, given the high share of their income that must be devoted to the relatively fixed cost of other necessities. If such families manage to use the additional income to get a place to live, they would still likely pay over half their income for housing that may be in bad shape and located in dangerous neighborhoods with low-performing schools. In contrast, housing vouchers, with an average monthly benefit of $560 and more in higher cost areas, work to enable the lowest-income families - those with the greatest housing needs - to access housing.

In addition, housing vouchers deliver results on a number of other housing goals that a cash supplement cannot accomplish. For example, vouchers help improve and maintain housing conditions, provide some security against arbitrary evictions, and are far more likely than a significantly smaller cash supplement to enable families to access lower-poverty neighborhoods with better schools and less crime. Vouchers also can be used as part of a housing-development strategy: housing agencies are permitted to attach, or "project-base," a portion of their vouchers to particular developments, and the rent stream then can be used to underwrite a larger loan than a project would otherwise qualify for.

Which way forward?

Housing activists should advocate for a major expansion in housing vouchers, along with funding and policy changes to preserve existing assisted housing and develop additional affordable housing. (Congress is currently considering policy changes to the voucher program that if enacted will put the program on a solid foundation for expansion.)

Yet even if the proposal by the Center for American Progress to add 2 million vouchers over the next 10 years - doubling the size of the program - were to be realized, millions of families likely would still be without housing assistance and have excessively high rent burdens. We should look beyond the boundaries of "housing" programs to develop sound proposals to meet the burgeoning problem of excessive housing costs. At the same time, however, it is important to remember that the families likely to benefit the most from the EITC or other tax-related strategies are likely to have less serious housing problems than those who would be better served by housing vouchers or other housing programs. In the real world of constrained resources, we need to be mindful of such priorities.

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