Zeno’s subsidy paradox
Does the cash I receive from a rental subsidy count as income when calculating my rent as a percentage of income?
Many housing assistance programs, most notably Section 8, are means-tested – the resident’s contribution is a percentage (in Section 8, 30%) of income, with the subsidy paying the difference between the resident share and the stated rent. So what then is the resident’s income?
If the subsidy is added, then the income rises, and then the resident’s share should be bigger by 30% of the increment, so the subsidy amount should go down … whereupon the resident’s income would drop a little, and so the resident’s share would be smaller by 30% of that increment … whereupon the resident’s income would rise a little bit littler …
It’s all reminiscent of Zeno’s paradox of Achilles and the tortoise. If Achilles runs ten times as fast as the tortoise, but the tortoise has a head start, can he ever catch the tortoise?
When Achilles has run the distance, the tortoise has one gone-tenth farther. When Achilles runs the one-tenth, the tortoise has gone one-one-hundredth.
While the footrace question was a stumper back in 450 BC, the invention of algebra made it possible to solve such paradoxes, yet they still recur in the present day.
So long as we stay within a single program – that is, HUD income certification and HUD Section 8 – the regulation-writers see the problem and have the good sense to exclude it – but what happens when two programs cross one another? The situation arises when low income housing tax credit (LIHTC) properties are rented by serving military families living off-post. Such soldier families are entitled to a Basic Allowance for Housing (BAH), which is set for every service family based on the service member’s rank. Service members who live on-post get free housing; those who live off-post are given BAH, which they can use anywhere they want.
Most service families have income that, in the abstract, are below the income ceilings set by the LIHTC program, but if the BAH is added, their income rises above LIHTC eligibility. In other words, without the military subsidy, the family would be income-eligible but couldn’t afford the housing. Along comes the military, providing a subsidy, which makes the housing affordable but now ineligible.
It’s hard to calculate the balance with the water flowing in and out like this
So we have an economic paradox: LIHTC housing sits empty because the people who need it, and can afford to pay for it using a subsidy provided by the military, are disqualified by virtue of having that subsidy. Because each program was enacted in magnificent ignorance of and disregard for the other.
Just follow the rules, okay?
In fact, because both requirements are specified in statute, it takes an act of Congress to reconcile them. Fortunately, those Senators not running for President have found enough time to address this. As reported by the Affordable Housing Tax Credit Coalition:
Senate Passes Limited Exclusion of Military Basic Housing Allowance From Consideration as Income
December 21, 2007
December 19, the Senate passed by unanimous consent an amended version of H.R. 3997, the Defenders of Freedom Tax Relief Act of 2007.
I always like how Congress, which has more ability to name things than Adam, entitles its statutes.
Adam, what do you call that?
Who could possibly be against the Defenders of Freedom Tax Relief Act?
We demand housing assistance
The Senate version includes a provision which would exclude amounts received as military basic housing allowances from being considered as income for purposes of determining eligibility in the Housing Credit program through 2014 provided the development is located in a census tract, designated by the Governor, as being in need of affordable housing for members of the military. This provision was not previously included in the House version of the same bill.
H.R. 3997 was introduced on October 30, 2007 by House Ways and Means Chairman Charles B. Rangel (D-NY) and originally passed the House on November 6, 2007. Since then it has been amended by both the House and Senate several times. The latest Senate version will now return to the House for consideration early next year.
Nearly forty years in Congress, enacting the people’s taxes and tax reliefs
This provision is similar to legislation previously introduced in the 110th Congress and reported on by the Coalition. The Military Access to Housing Act of 2007 (H.R. 1481 and S. 839) would also exclude amounts received as military basic housing allowances from determination of income under the Housing Credit program, however it would not limit the exclusion to areas designated by the Governor. The Military Access to Housing Act of 2007 was introduced in the Senate by Senators Pat Roberts (D-KS) and Sam Brownback (R-KS) and in the House by Congressmen Jerry Moran (R-KS), Walter Jones, Jr. (R-NC) and Ron E. Paul (R-TX).
This little fable has a couple of morals:
Don’t bet against the tortoise?
1. The tax code is massively inconsistent in its treatment of individuals versus entities. As a general rule, entities are allowed to deduct from their income the costs of earning it, yet individuals (who need housing every bit as much as businesses need offices) cannot deduct their ordinary and necessary expenses.
2. Whenever you design a housing program with mean-testing of income, write a definition that excludes from income any assistance directly paid for providing housing. Don’t assume that just because you cannot think of another form of housing assistance, someone else won’t come up with it … or many already have come up with it.
There are more subsidy programs in heaven and earth, Horatio
Than are dreamt of in your philosophy
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