A House subcommittee, claiming that federal tax policies have inadvertently favored suburbia over the cities for the last 30 years, has outline proposals for tax reform as goals of a national urban policy.
Some of the reforms resemble those put forth by the Carter administration, but others go much farther in an effort to foster urban development.
While the administration is considering the possibility of a ceiling on the amount of mortgage interest that can be deducted in any one year, the Banking Committee's subcommittee on the city favors a tax credit rather than a tax deduction.
Since credits are subtracted directly from tax payments due rather than from the income on which the tax is figured, the dollar is worth the same to a taxpayer in the 14 per cent bracket as it is to one in the 70 per cent bracket.
Under the present tax structure, the deduction for mortgage interest is of no use to low- and middle-income homeowners who take the standard deduction. Only 52 per cent of those in the $10-$15,000 income bracket currently itemize their deductions.
The subcommittee estimates that all homeowners could be allowed a credit equal to 20 per cent or slightly more of their mortgage interest payments without reducing Treasury revenues. While a ceiling on interest deductions could lead to a decrease in the value of very expensive homes, subcommittee staff say a credit would cause the values of homes owned by low- and moderate-income persons to rise while the others declined.
The advantage of a credit system in a city undergoing change would be to lessen the disparity in housing between the poor residents and affluent new arrivals.
Subcommittee chairman Henry S, Reuss (D-Wis.) and Rep. Millicent Fenwick (R.-N.J.) also emphasized the need for more new and rehabilitated middle-income housing. Besides filling in the gap between rich and poor in a community the tax credit would have a "trickle down" effect of poorer persons moving into older houses. "This is a lot better than jerry-built (new), low-income tenements," Reuss observed.
The subcommittee is calling for a phasing out of tax shelters for construction of office buildings, shopping centers and other commercial buildings. These shelters cost the government $1.3 billion in revenues a year and primarily aid the affluent.
The Congressional Budget Office found that 35 per cent of the $1.3 billion assists commercial construction, 54 per cent middle- and upper-income rental housing, and only 11 per cent low- and moderate-income rental housing. This type of government subsidy for new housing has been at the expense of rehabilitation of existing housing, the report noted.
George E. Peterson, author of "Federal Tax Policy and Urban Development," called the federal government's primary effort to equalize the tax breaks by allowing a five-year write off for the expenses of rehabilitating low income rental housing "highly disappointing." He said its chief beneficiaries were absentee landlords who undertook quick, shoddy renovations.
The subcommittee is recommending a policy of tax neutrally, so new construction does not continue to overshadow the preservation of old buildings. It calls for straight line depreciation, rather than the accelerated depreciation deductions allowed in the past.
The subcommittee also favors restricting the use of tax-free state and local bonds for private industry plant and equipment to areas of high unemployment.
The Sun Belt states attracted industry away from the North, just as the suburbs earlier attracted companies away from the cities, with promises of development money from tax free bonds.
It urges "reexamination" of the use of tax free bonds for quasi-public projects like sports and convention facilities, parking garages and sewage systems. It suggests that developers and residents might be required to bear the cost of consttructing streets, schools, sidewalks and fire stations.