Cost of LIHTC Small Compared to Other Federal Tax Expenditures

The Joint Committee on Taxation (JCT) recently released its annual report on federal tax expenditures, listing over 150 tax provisions that are expected to reduce federal revenue over the coming years. As in years past, the report shows the comparatively low cost of the low-income housing tax credit compared to other tax expenditures. New this year is the Opportunity Zones (OZ) incentive, created as a result of tax reform in late 2017.

The estimates in this year’s tax expenditure report look significantly different than those in reports from previous years due to the extensive changes made by the Tax Cuts and Jobs Act, passed at the end of 2017. A “tax expenditure” refers to any provision in the tax code that provides a special deduction, credit, exclusion, or other tax preference that wouldn’t be included in a “normal” tax code. The question of which specific tax provisions should count as tax expenditures is often up for debate. However, under any definition, it’s clear that the federal government forgoes hundreds of billions of dollars in revenue each year due to tax expenditures.

Itemized deductions represent the largest government revenue costs. The mortgage interest deduction will cost $216.6 billion between 2017 and 2021, down from $357 billion estimated for 2016 to 2020. One of the largest decreases over the five-year period can be found in the deduction of state and local taxes. The 2017 estimate is for $100.9 billion in expenditures. As a result of tax reform and the limitation placed on state and local tax deductions, the 2018 estimate is for just $36.6 billion. The annual tax expenditure is expected to increase to $173 billion in 2026, when the $10,000 limitation on deductions is scheduled to expire.