Re: ADV-BUDGET ANALYSIS, Bush Budget would slash key housing programs

http://www.nhi.org/online/issues/151...rkingpoor.html

For more than two decades - under Presidents Reagan, Bush, Clinton, and now
Bush - housing activists have had to settle for crumbs. For the most part, they
fought defensive battles to protect existing federal programs within the
Department of Housing and Urban Development (HUD), such as public housing,
Section 8 vouchers, HOME, and various funding schemes for the homeless.


Housing activists hope that the next president and Congress will increase the
HUD budget - for example, by creating a national housing trust fund. But even
the most ambitious proposal so far - presidential candidate John Edwards' call
for adding a million new housing vouchers - is still a relatively small,
incremental increase compared to the need. In contrast, all the Democratic
presidential hopefuls are advocating a significant expansion of the Earned
Income Tax Credit (EITC), the wage supplement for the working poor that has
become, without much fanfare, the nation's most effective anti-poverty program.


Last year, more than 22 million working American families received more than $41
billion in EITC benefits. In contrast, only 5.5 million low-income households
receive any federal housing assistance (mostly from HUD but a small number from
the Department of Agriculture's Rural Housing Service). The EITC is an
entitlement. HUD programs - including Section 8 vouchers - are a lottery,
available only to a lucky few.


What lessons should housing activists learn from these realities? Perhaps we
should find a way to combine the best aspects of HUD's largest program (Section
8 vouchers) with the popularity and efficiency of the EITC.


This isn't a new idea, but it hasn't received much attention since it was first
proposed in 2001 by the late Cushing Dolbeare, founder of the National Low
Income Housing Coalition, and expanded upon three years later by Michael
Stegman, a University of North Carolina professor who served as assistant
secretary for policy development and research at HUD during the Clinton
administration, and two of his UNC colleagues, Walter Davis and Robert Quercia.
Their idea to use the EITC as a way to expand federal housing subsidies for the
working poor deserves a second look.


This is the right moment to advance an aggressive strategy to help house the
working poor. The nation's political climate is changing as greater numbers of
Americans recognize the negative consequences of deepening economic disparities
and persistent poverty. Public opinion polls show that an increasing number of
Americans support policies to lift people out of poverty and improve living
conditions for the poor. Ironically, one reason for this shift is the change in
the way poor people are viewed in the wake of welfare reform, initially adopted
with considerable controversy in 1996. Increasingly, "poverty" in America has
become identified with low-wage workers, whom Americans seem to believe are more
"deserving" than those on welfare. Another reason is the widening class divide,
especially between the rich and everyone else - a problem that Edwards has
called the "two Americas."


EITC Basics
The EITC was created in 1975 as part of the public debate during the Nixon era
about providing a guaranteed minimum income for all Americans. The initial
program was quite small; in 1975, it served only 6.2 million families and
provided a credit up to $400. Since then, it has been extremely popular with
most Democrats and many Republicans. President Ronald Reagan, President George
H.W. Bush, and President Bill Clinton all praised it. Congress increased the
EITC - raising benefit levels and expanding eligibility criteria - several times
in the 1980s and 1990s. In 1993, President Clinton and Congress doubled the size
of the EITC as part of his plans to cut welfare and to "make work pay."


In 1999, George W. Bush, then the governor of Texas, criticized GOP proposals to
cut the EITC, saying that he didn't think "we ought to balance the budget on the
backs of the poor." As president, however, Bush bowed to pressure from
right-wing Republicans to get the IRS to increase its auditing of low-income
Americans who filed for EITC benefits while simultaneously reducing its
monitoring of wealthy taxpayers.


On its own, by providing families additional income, the EITC already helps ease
the housing cost burdens of the working poor. But even with the additional money
from EITC, most working-poor families still spend more than 30 percent of their
incomes - and some spend over half their incomes - for housing.


Why is this? One of the EITC's shortcomings is that the benefit levels are the
same across the country, even though the cost of living - especially housing -
varies dramatically in different metropolitan areas. For example, according to
HUD, the fair-market rent for two-bedroom apartments in greater Los Angeles is
$1,189, compared with $950 in greater Baltimore, and $613 in the Jackson, Miss.,
area. To address these disparities, Dolbeare, and then Stegman and his
colleagues, proposed adjusting EITC benefit levels to help working families pay
for housing. If adopted, this change would go a long way to improving the
housing conditions of the nation's low-income working families.


The EITC helps workers in low-paying jobs (earning up to $38,348) to support
themselves and their families. It reduces tax burdens and supplements wages for
low-income working families, especially those with children. Under the EITC
formula for 2006, for example, a single parent with two or more kids who earns
$20,000 would receive $3,859. A married worker with two or more kids earning
$35,000 would receive $700.


The EITC is a refundable tax credit. Workers who qualify for the EITC can get
back some or all of the federal income tax that was taken out of their pay
during the year. They may also get extra cash back from the IRS. Even workers
whose earnings are too small to owe income tax can get the EITC. The EITC was
fashioned in part to offset the regressive payroll tax burdens that low-income
workers face, as well as income taxes that they may owe.


One of the EITC's principal goals is to reward low-wage workers by reducing the
taxes that they pay on their earnings and by supplementing their wages; another
is to bring those with full-time jobs at least up to the poverty line. The EITC
does not count benefits like cash assistance ("welfare"), Medicaid, food stamps,
Social Security Income, or subsidized housing as income when determining
eligibility. In 1986, Congress indexed the EITC for inflation, which it has
refused to do for the minimum wage.


Who gets the EITC? In 2003, 70 percent of recipients earned less than $20,000.
Recipients are concentrated in metropolitan areas, with slightly more living in
inner-ring suburbs than in cities. The additional income to these low-wage
families helps improve local economic conditions, since the poor spend almost
all of their money for necessities. According to a Brookings Institution report,
for example, in 2000, the EITC generated more than $125 million in additional
income to low-wage families in the Baltimore area, while in metro Chicago it
brought in more than $462 million.


The EITC offers little to families without children. In a recent report
outlining a comprehensive anti-poverty agenda, the Center for American Progress
recommends tripling benefits for childless workers. It also suggested expanding
benefits for those with three or more children. These changes alone would reduce
the number of Americans in poverty by 2 million.


Housing Conditions of the Working Poor
For most American families, housing is the largest part of their household
budget. This is particularly true of the poor, who typically spend more than
half of their incomes just to keep a roof over their heads.


In 2005, the 22 million households with incomes below $19,000 represented the
poorest one-fifth of the population. Among them, more than 6 million were headed
by an adult who worked at least 27 weeks a year. Of these, 55 percent of
households paid more than half their incomes for housing, while another 25
percent paid between 30 percent and 50 percent of their incomes for housing.


The 22 million households with incomes between $19,000 and $35,700 represented
another one-fifth of the population; more than 13 million of them earned their
incomes by working at least 27 weeks a year. Among them, 15 percent paid more
than half their incomes for housing, while another 36 percent paid between 30
percent and 50 percent of their incomes for housing.


In other words, there are about 12 million "working poor" families - owners as
well as renters - who pay more than they can reasonably afford for housing.
Despite this great need, federal housing subsidies are not an entitlement, like
food stamps, public education, or the EITC.


In 2005, only 5.5 million of the 23.5 million renter households with incomes
under 80 percent of median - 23.4 percent of low-income families - received any
housing assistance from Washington. These include the 2 million families with
Section 8 vouchers as well as 1.1 million families living in public housing,
another 1.3 million households living in other federally subsidized housing
developments, and others living in subsidized rural housing.(See graph)


Few of the most desperately poor Americans get any housing help. Only 3.2
million of the 9.7 million renter households with incomes below 30 percent of
median income received any form of federal housing assistance. Only 1.2 million
of the 6.3 million renter households with incomes between 30 percent and 50
percent of median income had any housing aid from the federal government. Among
the 7.5 million renter households with incomes between 50 percent and 80 percent
of median income, only 992,000 (13 percent) got housing subsidies.


But renters aren't the only poor families facing high housing costs. There are
26.9 million households with incomes below 80 percent of median income that own
their homes. More than half of them (52 percent) pay more than 30 percent of
their incomes for housing; 27.7 percent of them pay over half their incomes for
housing. There are no federal housing subsidies for these low-income owners.
Hardly any of them are even able to take advantage of the tax breaks that
affluent homeowners take for granted. This is because their incomes are so low
that they pay little or no income taxes in the first place.


How an EITC Housing Component Would Work
To revise the EITC to address housing needs, Congress should add a housing
component, tied to local housing costs. The Section 8 voucher program already
does this. HUD routinely surveys rental housing conditions in every metropolitan
area (and non-metro areas) to determine what it calls "fair market rents"
(FMR) - typically rent levels at the 40th percentile for apartments with one,
two, or more bedrooms. It does this to determine the maximum rent levels
eligible for Section 8 vouchers in different parts of the country.


A similar formula can be used to determine the size of the EITC housing
supplement in each area. The Section 8 subsidy varies from area to area; it pays
the difference between 30 percent of a household's income and the market rent,
up to the FMR maximum. Likewise, the EITC housing supplement would vary from
area to area depending on market conditions. In the Los Angeles area, where the
two-bedroom FMR is $1,189, the annual EITC housing supplement might be $3,600 -
or $300 a month. In the Baltimore area, where the two-bedroom FMR is $950, the
annual EITC housing supplement might be $2,880 - or $240 a month. And in
Jackson, Miss., where the two-bedroom FMR is $613, the annual EITC housing
supplement might be $1,836, or $153 a month. Because the EITC already provides
workers with extra income, its housing supplement does not have to fully fund
the gap between 30 percent of household income and FMRs.


The overall size of the EITC housing supplement will depend on how generous
Congress wants to be. It would be useful for Congress to identify the potential
cost of an EITC housing supplement at different benefit levels.


One problem with the EITC is that most families receive the credit as an annual
lump sum when they get their income tax refund. Low-income families obviously
need their housing subsidy on a monthly basis so they can pay the rent or the
mortgage. The EITC already has a mechanism to deal with this - the "advanced
payment option" - which allows workers to receive a portion of their anticipated
credit from their employers as part of their regular paychecks. Currently,
however, less than 1 percent of EITC recipients exercise this option. For the
EITC housing program to be successful, more workers must use this option.
Congress could, for example, require employers to participate in the advanced
payment plan and/or the IRS could work with unions, churches, and community
groups to publicize this option and get more eligible workers to use it.


EITC Compared with Section 8
Why not simply expand the existing Section 8 rental-voucher program? The answer
is both programmatic and political.


One of the most attractive features of the EITC is that, in contrast to federal
housing programs, it is an entitlement provided to all those who qualify and
apply for it. The EITC already reaches 22 million households, compared with the
Section 8 program, which serves only 1.9 million families. Some working families
who claim the EITC also have a Section 8 voucher or live in other subsidized
housing, but they are a small fraction of all EITC recipients. (Even so, about
10 percent to 15 percent of families eligible for the EITC fail to claim it, a
problem that can be addressed through increased outreach by the IRS, community
groups, unions, and employers).


EITC includes many working families who are above the official federal "poverty"
threshold of roughly $20,000 for a family of four, but still cannot make ends
meet.


The EITC is politically popular for a number of reasons. For one thing, it
rewards people who work, so it does not carry the stigma attached to "welfare,"
which was viewed by many politicians, editorial writers, and opinion-leaders as
subsidies for the so-called "undeserving" poor. In recent years, the ranks of
the working poor have swelled, in part because of the rise of low-wage jobs and
in part because welfare reform, adopted in 1996, pushed many poor Americans,
mostly single women with children, into the workforce.


The EITC is also popular because it is relatively invisible. It is an
anti-poverty program that comes in through the back door, as a tax break, rather
than through the front door as a direct grant, like food stamps, Medicaid, and
welfare. It is part of what Christopher Howard, a political scientist at the
College of William & Mary, calls "the welfare state nobody knows" in his new
book of that title.


Politically, it has been extremely difficult for housing advocates to get
Congress to maintain, much less increase, the budget for HUD's subsidized
housing programs, despite the growing number of Americans living in poverty and
rising housing costs.


Government-subsidized housing is still stuck with the stigma of housing of last
resort, despite the fact that the United States hasn't built high-rise
public-housing developments since the 1960s. To the contrary, the low-income
housing built in the past few decades - much of it by private nonprofit CDCs -
has been well-designed and well-managed. Yet, stereotypes persist. Housing
advocates need to do a better job of changing the negative images associated
with subsidized housing.


Since the 1970s, Congress has shifted spending away from construction of new
housing toward housing vouchers, which were seen as cheaper and more flexible.
Even so Congress has been reluctant to significantly expand the Section 8
voucher program. It has funded only 2 million Section 8 vouchers - what some
people call "housing food stamps" - to help recipients pay the rent.


According to the Center on Budget and Policy Priorities, for example, President
Bush's budget for Fiscal Year 2008 proposes to cut $2 billion (5 percent,
adjusted for inflation) from HUD. These cuts come on top of cuts made the
previous two years. Under the president's 2008 budget, total HUD funding would
fall to a level that is $4.6 billion - or 11 percent - below the 2004 levels.


Adding a housing component to the popular EITC is likely to be easier to sell
than to dramatically increase the Section 8 program. Another advantage of the
EITC approach is that recipients can use the money for rental or ownership
housing, compared with the Section 8 voucher program, which is limited to rental
housing.


Limitations
There are, however, two potential criticisms of the EITC approach that advocates
will need to address.


One likely concern is that, unlike the Section 8 voucher program, which can only
be used to help families pay rent, there is no guarantee that families will use
the extra EITC income to pay for better housing. They could spend the money on
food, transportation, clothing, health care, or even on nonessential items.
Given what we know about how the poor spend their incomes, however, it is almost
certain that most of them will spend the additional income on basic necessities.
And because housing is more expensive than other necessities, it is likely that
most recipients will use most or all of the extra income to improve their
housing conditions. They are likely to use the money to help pay their rent or
to find improved housing (better condition, larger space, more convenient
location) with higher rents.


The EITC could also provide low-wage working families with greater choices about
where to live. It could thus help them move to opportunity without the stigma of
using Section 8 vouchers, which often consigns them to living in Section 8
ghettoes.


Many landlords refuse to accept tenants with Section 8 vouchers. This is
especially the case in tight housing markets with low vacancy rates, where
landlords can be somewhat selective. Some landlords worry that the local housing
authority won't pay them regularly or on time. Others don't like having their
apartments inspected and to meet housing-code standards to qualify to receive
Section 8 funds. And some landlords simply don't want to rent to poor people. In
contrast, working families with additional income through the EITC have no
stigma attached to their subsidy, since it is invisible to landlords, rental
agents, and realtors.


A second likely concern is that, by design, the EITC only serves low-income
families who have jobs. The Section 8 voucher program serves the working poor as
well as the jobless poor, who, one might assume, have the most desperate needs.
Indeed, federal rules require local housing agencies (who administer the Section
8 voucher program) to ensure that 75 percent of households newly admitted to the
voucher program each year have incomes at or below 30 percent of the area
median.


Since Congress passed welfare reform in 1996, a growing proportion of the poor
are now working. But research has found that the carrot of EITC - more than the
stick of welfare reform - has been a valuable incentive for the poor to enter
the workforce.


Joblessness is the result of a combination of factors. These include the
shortage of jobs in many areas; the mismatch between skills and the needs of the
job market; persistent racial discrimination by many employers; the preference
of single mothers to care for their young children rather than work; and the
frustrations of poor people who can't find work and sometimes give up trying.
Jobless families deserve decent housing, too, and the EITC housing supplement
will not provide it. For those households, some version of the Section 8 voucher
program, as well as funds to expand the supply of affordable housing, will still
be needed.


Even if well-funded, an EITC housing supplement won't solve all the housing
problems confronting America's working poor and near-poor. It is a
""demand-side" approach that helps working families pay for housing in the
private market. It assumes such housing is available. But there is still a
shortage of housing in many parts of the country, so we need to expand the
overall supply through programs that provide funds for new construction. In
particular, we need federal funds - and regulatory sticks and carrots - to
promote the construction of mixed-income housing in both central cities and
suburbs to avoid further isolating the poor in areas of concentrated poverty.


Seizing the Political Opportunity
America is experiencing a new Gilded Age - a frenzy of corporate mergers,
widening economic disparities, and deteriorating social conditions. Today, the
richest 1 percent of Americans - those 1.5 million people with incomes over
$348,000 - has 22 percent of all income and about 40 percent of all wealth. This
is the biggest concentration of income and wealth since 1928. In 2005, average
CEO pay was 369 times that of the average worker, compared with 131 times in
1993 and 36 times in 1976. At the pinnacle of America's economic pyramid, the
400 billionaires own 1.25 trillion in total net worth - the same amount as the
56 million American families at the bottom half of wealth distribution.


Meanwhile, the American Dream - the ability to buy a home, pay for college
tuition and health insurance, take a yearly vacation, and save for retirement -
has become increasingly elusive. A growing number of working families are in
debt, while the number facing foreclosure has spiraled. American workers face
declining job security as companies downsize, move overseas, and shift more jobs
to part-time workers. The cost of housing, food, and other necessities is rising
faster than incomes. Even two-income families have trouble making ends meet.


Between 2000 and 2005, the number of Americans in poverty grew from 31.5 million
(11.3 percent of the population) to 36.9 million (12.6 percent). During that
period, the number of Americans without health insurance increased from 39.8
million (14.2 percent) to 46.6 million (15.9 percent).


Under these conditions, it is not surprising that Barbara Ehrenreich's 2001
exposé about the working poor, Nickel and Dimed, was one of the most popular
books of the past decade. During that period, growing protests against
Wal-Mart - a symbol of big employers who offer workers low pay and inadequate
benefits - indicate that concerns about inequality and poverty are moving from
the margin to the mainstream of American politics.


A sure sign that the political climate is changing is the fact that The New York
Times Magazine devoted the June 10 issue to articles about inequality and
poverty.


In his presidential campaign, former Senator John Edwards is focusing on
dramatically reducing the nation's poverty rate and has put forward an
anti-poverty agenda in speeches, position papers, and a new book, Ending Poverty
in America. Senator Barack Obama has also released an anti-poverty plan as part
of his White House bid.


There is growing political pressure to help the working poor. In response to
grass-roots campaigns by unions and community organizations, more than 150
cities and counties have passed "living wage" laws since 1994, most of them in
the past five years. In November 2006, voters in six states - Arizona, Colorado,
Missouri, Montana, Nevada, and Ohio - approved measures to raise state
minimum-wage levels by $1 to $1.70 an hour and index them to inflation. In
Missouri, the initiative passed in every county, winning 76 percent of the
statewide vote. In Montana, voters passed the minimum-wage boost by a 73-percent
to 27-percent margin. In addition to these six victories, the legislatures in
another 11 states - Arkansas, California, Delaware, Maine, Maryland,
Massachusetts, Michigan, North Carolina, Pennsylvania, Rhode Island, and West
Virginia - enacted increases in the minimum wage; six of those states were
exceeding the federal rate for the first time. This year, four states - Iowa,
Kentucky, New Hampshire, and New Mexico - did so. As a result, 33 states and the
District of Columbia have now passed legislation or approved ballot initiatives
raising their state minimums above the federal minimum.


Polls show that a vast majority of Americans want to raise the federal minimum
wage, which has been stuck at $5.15 an hour since 1997 - its lowest amount, in
inflation-adjusted dollars, in more than 50 years. Since winning a majority in
Congress in 2006, the Democrats pledged to hike the federal minimum wage. In
May, President Bush reluctantly signed a bill increasing the minimum wage to
$7.25 over two years. That figure, however, is only about 40 percent of the
average wage. In July, Edwards called for gradually increasing the minimum wage
to $9.50 an hour by 2012 and indexing it to inflation. Polls also show that
support for labor unions has reached its highest level in more than three
decades. Within the labor movement, there is an increasing emphasis on
organizing, especially among workers in low-wage sectors, such as hospital
workers, janitors, security guards, nurses, and hotel employees.


In this political climate, housing activists should join with the labor
movement, community organizing groups, religious congregations, and children's
advocates to seize the growing momentum for lifting the working poor out of
poverty. As a part of that mission, it makes sense for housing activists to work
together with anti-poverty allies to add a housing supplement to the EITC.




Copyright 2007

Peter Dreier, an NHI board member, is E.P. Clapp Distinguished
Professor of Politics and director of the Urban & Environmental
Policy program at Occidental College in Los Angeles. He is coauthor of Place
Matters: Metropolitics for the 21st Century and several other
books.



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Resources
“From Poverty to Prosperity: A National Strategy to Cut Poverty in Half,” Center
for American Progress, April 2007.
www.nhi.org/go/povertyreport


“The Earned Income Tax Credit as an Instrument of Housing Policy,” by Michael
Stegman, Walter Davis, and Roberto Quercia. Housing
Policy Debate, Vol. 15, Iss. 2, 2004.
www.nhi.org/go/stegman


“The Earned Income Tax Credit at Age 30: What We Know,” by Steve
Holt. Brookings Institution, February 2006.
www.nhi.org/go/age30

“A Local Ladder for Low-Income Workers: Recent Trends in the Earned Income Tax
Credit,” by Elizabeth Kneebone. Brookings
Institution, April 2007.
www.nhi.org/go/ladder


“Rewarding Work Through the Tax Code: The Power and Potential of the Earned
Income Tax Credit in 27 Cities and Rural Areas,” by Alan Berube. Brookings
Institution, January 2003.
www.nhi.org/go/berubetaxcode


The Housing Landscape for America’s Working Families 2005, Center
for Housing Policy, April 2005.
www.nhi.org/go/landscape


“The Earned Income Tax Credit: Boosting Employment, Aiding the
Working Poor,” by Robert Greenstein. Center on Budget and Policy
Priorities, August 17, 2005.
www.nhi.org/go/cbpp


“The State of the Nation’s Housing 2007,” Joint Center for Housing Studies of
Harvard University, 2007.
www.nhi.org/go/stateofhousing