Layser: Renters' Tax Credits

Michelle D. Layser (San Diego; Google Scholar), Renters' Tax Credits, 113 Geo. L.J. __ (2024):

America is facing an affordable housing crisis that current policies have failed to mitigate. Even before the COVID-19 pandemic, half of American tenants were rent burdened, paying more than one-third of their income on rent. For this reason, Renters' Tax Credit (RTC) proposals are gaining traction in Washington and in policy circles. The most ambitious proposals would reimburse tenants for rent payments that exceed 30 percent of their income level, subject to rent limits. In scale and significance, such RTCs would almost certainly overshadow—or even replace—the nontax Housing Choice Voucher program that has been the centerpiece of federal housing policy since 1974. It would be the first time since 1993 that a large, existing nontax public welfare program was shifted into the Tax Code, and it would be the first time that a major nontax, in-kind welfare benefit was integrated into the tax system.

Through a case study of the evolution of American housing policy, the recent failures of the Housing Choice Voucher Program, and current RTC proposals, this Article explores the potential and limits of in-kind integration of housing benefits in the tax system. Drawing on theory about the integration of tax and spending programs, it argues that an RTC may be appropriate if the goal is to expand access to housing. However, if the goal is to fight poverty by assisting rent-burdened tenants, then a more efficient and equitable approach would be to “cash out” the vouchers by converting them into unrestricted cash or tax credits. Cashed out vouchers would have advantages over an RTC, including institutional design, simplification, efficiency, and distributive benefits. It would also fundamentally change the nature of the intervention from a public-private partnership model to a public assistance model, with consequences for program outcomes. The analysis provides essential context for policy debates about RTCs, advances theory about the integration of in-kind benefits, and highlights the urgent need for clarity in policy goals.