Bills
| 3.23.22

Should the Feds Give Refundable Tax Credits to Help People Whose Rent Exceeds 30% of Their Gross Income? (S. 1106)

Do you support or oppose this bill?

What is S. 1106?

(Updated March 8, 2022)

This bill — the Rent Relief Act of 2019 — would create a refundable tax credit for individuals who pay rent for a principal residence that exceeds 30% of the individual's gross income for the taxable year.  The amount of the credit would range from 25% to 100% of the excess rent, depending on the taxpayer’s gross income.

Households would be eligible for credits in the amount of following percentages at the corresponding gross income threshold: 

  • Gross income < $25,000: 100%
  • Gross income between $25,000 and $50,000: 75%
  • Gross income between $50,000 and $75,000: 50%
  • Gross income between $75,000 and $100,000: 25%
  • Gross income over $100,000 (or $125,000 in a high-cost area): 0%

Rent that exceeds 100% of the small area fair market rent (including the utility allowance) for the residence could not be taken into account for the purpose of determining the amount of the credit. 

For individuals who reside in government-subsidized housing, the bill would allow a credit equal to 1/12 of the rent paid by the taxpayer (and not subsidized under the program) during the year with respect to the residence. 

To implement this bill, the Treasury Dept. would establish a program for making advance payments of the credit on a monthly basis.

Argument in favor

Many low-income and even middle-class households are struggling to make rent payments. Giving these families a refundable tax credit to help balance their budgets would go a long way towards stabilizing their circumstances.

Argument opposed

As demonstrated elsewhere, government subsidies tend to simply drive up the cost of the good they subsidize. Thus, rather than helping low-income families, this bill will only further enrich landlords by allowing them to jack rents up even further.

Impact

Renters whose rent exceeds 30% of their gross incomes; residents of government-subsidized housing; refundable tax credit for eligible renters; and the Treasury Dept.

Cost of S. 1106

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. Kamala Harris (D-CA), a 2020 Democratic presidential candidate, reintroduced this bill from the 115th Congress to provide rent relief to working families struggling to pay their bills. In a press release, Sen. Harris called housing a human right that must be protected: 

“Housing is a human right, and we must act now to end the affordable housing crisis and provide relief to working families who are worried about making each month’s rent. Right now, nearly half of Americans couldn’t afford an emergency $400 expense – these families need help now. This is about more than just economics—it’s about the basic security and dignity that every American deserves to have in their own home.”

When she introduced this bill last Congress, Sen. Harris said: 

“America’s affordable housing crisis has left too many families behind who struggle each month to keep a roof over their head,” said Senator Harris. “This bill will ensure no family is priced out of the basic security of a place to live. Bolstering the economic security of working families would strengthen our country and increase opportunity.”

Matthew Desmond, author of “Evicted: Poverty and Profit in the American City,” expressed support for this bill last Congress: 

“The lack of affordable housing is a national emergency. Senator Harris is bringing heightened awareness to a crisis that’s been ignored for far too long. The Rent Relief Act reflects a strong commitment to ensuring that all Americans have access to a safe and affordable home.”

Daniel Yentel, President and CEO of the National Low Income Housing Coalition, expressed her organization’s support for this bill in the 115th Congress: 

"I applaud Senator Harris for her leadership in introducing this innovative, bold proposal, which would help struggling families who today face impossible choices between paying rent and meeting their other basic needs, including putting groceries on the table and taking care of their health. A new tax credit for renters - like the one proposed by Senator Harris - could transform lives, providing millions of the lowest income people with the breadth of opportunities that start with an affordable home -  opportunities to climb the economic ladder, improve their health, and allow children to do better in school."

In 99% of counties in the U.S., a person working full time at the minimum wage can’t afford a one bedroom apartment at fair market rate. The Columbia Center on Poverty and Social Policy estimates that this bill would reduce the poverty rate by as much as 2.4%, lifting 7.8 million Americans — including over two million children — out of poverty.

Because refundable tax credits (like the one proposed in this bill) are paid out by the government even when there’s no income tax liability, they’re a frequent target of criticism by conservatives. 

Elaine Maag, principal research associate at the Urban Institute and Tax Policy Center, notes that providing housing aid through a tax credit offers both attractive advantages and defining drawbacks. She notes that this approach’s success would depend on the program’s scope — the bigger, the better — and that it would also require the IRS to “change and modernize.” Maag adds: 

“Today’s IRS faces extreme budget constraints. Congress doesn’t seem to be interested in allocating a substantial amount of money for them to modernize and update their systems. Asking them to do any additional task could be quite daunting.”

However, she also notes, “Every time a new program gets enacted in the tax system, we say, ‘The IRS could never do this.’ And lo and behold, they do.”

Maag concludes that this bill may be the best Congress can currently do: 

“Congress is very constrained in what they can do. Spending programs are extremely difficult to expand or pass right now. Tax programs are an easier lift. In that sense, it might be the only thing they can reasonably expect to try.”

Vox’s Dylan Matthews warns that by giving “way more to poor people living in high-cost cities like New York and San Francisco than to people living in, say, Houston or Arizona,” this bill might push more people into high-cost cities. He says, “we should ask if that’s a policy goal we want to achieve.”

The Tax Foundation called this bill a “well-intentioned misfire” in 2018, writing: 

“[D]espite Senator Harris’s case that this new tax credit would lessen the burden of rent for lower-income individuals and families, such a tax credit program would distort the housing market and benefit landlords more than it would benefit renters. Furthermore, the program fails to address the reasons housing prices are so high. The tax credit program would distort decision-making for renters towards choosing more expensive properties. For example, someone who currently spends just under 30 percent of their income on rent would have an incentive to move to a more expensive apartment where rent is above 30 percent of their income to qualify for the tax credit… [T]he connection between new federal subsidies and higher prices has been shown in many other markets. For example, a Federal Reserve study found that for every dollar of federal aid for higher education, colleges raised their prices by 65 cents, meaning that students only receive 35 percent of the benefits of these subsidies. This phenomenon also appears in the case of the low-income housing tax credit (LIHTC), an existing program to encourage the construction of low-income housing through credits to both individuals and corporations. An NPR report noted that the program has led to the creation of fewer houses since 1997, while the program’s cost has risen by over 50 percent; moreover, many of the houses constructed using the LITHC would have been constructed anyway. The Congressional Budget Office found that the tax credit may allow investors and developers to capture much of the benefits, while only providing tenants with moderate assistance. Aside from these distortions that call into question the program’s effectiveness, Senator Harris’s bill would also have significant costs… Harris’s program is modeled after a proposal from the Terner Center for Housing Innovation at University of California-Berkeley. The Terner Center proposal was estimated to cost $76 billion per year. For context, making all of the individual income tax provisions of the Tax Cuts and Jobs Act permanent reduces federal revenues by $165 billion on an annual basis.”

The Tax Foundation concluded that in lieu of this bill, increasing the housing supply is the only way to make housing more affordable. It wrote, “Senator Harris’s rent relief bill would fail to address the root causes of the high cost of housing. Instead, it would wind up benefiting landlords, not significantly improving the lives of renters, and carrying a hefty price tag.”

This bill has three Democratic Senate cosponsors in the 116th Congress. Its House companion, sponsored by Rep. Danny Davis (D-IL), has six Democratic House cosponsors. 

In the 115th Congress, this bill had five Democratic Senate cosponsors and didn't receive a committee vote. Its House companion, sponsored by Rep. Scott Peters (D-CA), had seven Democratic House cosponsors and didn't receive a committee vote. 

This bill has the support of the National Low Income Housing Coalition, National Alliance to End Homelessness, Fair Housing of California, and the National Housing Law Project. 


Of Note: In 2018, the National Low Income Housing Coalition reported that there’s a 7.2 million housing unit shortage for America’s 11.2 million extremely low-income families (who account for 25.7% of all renter households and 9.5% of all households in the country). For every 100 low-income renter households, only 37 affordable and available rental homes exist. 

The NLIHC reported that 71% of extremely low income renter households are “severely cost-burdened,” defined as spending over half their incomes on rent and utilities. Further, it found that 32% of very low income, 8% of low income and 2.3% of middle income renter households are also severely cost-burdened. 

Sen. Harris’ office notes that families of color are disproportionately affected by the housing affordability crisis, as immigrant families and families of color account for half of renter households. 


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / turk_stock_photographer)