The Senate’s passage of a $4 trillion budget blueprint on Thursday night sets the stage for comprehensive tax reform. The budget provides for $1.5 trillion in tax reform using reconciliation, a special procedural rule that allows for certain budget-related bills to pass the Senate by 50 votes.
“Tonight we completed the first step toward replacing our broken tax code by passing a comprehensive, fiscally responsible budget that will help put the federal government on a path to balance,” said Senate majority leader Mitch McConnell (R-Ky.). “This budget also gives us the tools we need to strengthen our economy after years of stagnation under the previous administration. We have a once-in-a-generation opportunity to replace a failing tax code that holds Americans back with one that works for them.”
The House is expected to vote Thursday to back the Senate’s budget resolution.
As the potential for tax reform has loomed over the affordable housing industry for several years, it received good news in September when the low-income housing tax credit (LIHTC) was one of only two credits to be explicitly retained in a tax reform outline prepared by the Republican leadership. The other was the research and development tax credit.
The nine-page Unified Framework For Fixing Our Broken Tax Code released in September envisions repealing other business credits, including New Markets, historic, and renewable energy tax credits. “The committees may decide to retain some other business credits to the extent budgetary limitations allow,” says the document, referring to the House Ways and Means Committee and the Senate Finance Committee.
The outline also proposes to reduce the corporate tax rate to 20%, which could devalue the LIHTC for investors. The proposal is seen as a starting point for the negotiations, and some observers said they believe a higher rate may emerge as congressional leaders dig into the hefty job of revising the tax code.
“Let’s be frank about this, the only reason we’re where we are is advocacy. Advocacy gets the lion’s share of the credit for being in the framework,” says David Gasson, vice president at Boston Capital and executive director of the Housing Advisory Group. “We’re part of the answer on tax reform by name.”
However, industry leaders warn that it’s not a time to become complacent; advocacy efforts must continue.
“Just because we made it to the framework doesn’t mean at the end of the day that we will be there,” says Bob Moss, principal and national director of governmental affairs at CohnReznick.
“My call to action is to utilize the tool that has had a 100% success rate—having members visit properties, grand openings, and existing properties. We’ve never had a member walk away and say, ‘I don’t like this,’” Moss says. “It has to be done on the ground and in the home district. Visits to Washington, D.C., are helpful, but not as powerful as in the districts.”
Peter Lawrence, director of public policy and government relations for Novogradac & Co., adds that the industry can’t wait for Congress to hash out details.
“Once the bill is released, it might be too late to change the trajectory,” he says. “Reach out and call your legislators, mention how important the tax credits are to their districts.”
The Affordable Rental Housing ACTION (A Call to Invest in Our Neighborhoods) Campaign, representing over 2,000 stakeholders, released an industrywide letter to Congress and the administration praising them for the housing tax credit’s inclusion in the framework, but also emphasizing that they should not only retain the LIHTC but modernize it.
Emily Cadik, director of public policy at Enterprise Community Partners, says the ACTION Campaign is urging Congress to retain the tax exemption on multifamily housing bonds; enact proposals that are part of the Affordable Housing Credit Improvement Act, introduced by Sen. Maria Cantwell (D-Wash.) and Senate Finance Committee chairman Orrin Hatch (R-Utah) in the Senate (S. 548), and by Rep. Pat Tiberi (R-Ohio) and Ways and Means Committee ranking member Richard Neal (D-Mass.) in the House; and make any changes beyond those to offset the effects of a lower corporate rate on the LIHTC.
“It’s a complicated message, but an important one,” says Cadik.
Gasson adds that the industry continues to be part of conversations with the tax-writing committees to protect and strengthen the LIHTC.
On the clock
Although timing for tax reform is still uncertain, Lawrence says he expects House Ways and Means chairman Kevin Brady to release his marks and then schedule a markup in committee in early November.
“The optimistic scenario is that once Ways and Means has marked up tax reform legislation, shortly thereafter and before Thanksgiving, the full House would take it up and pass it,” says Lawrence. “At the same time the Senate Finance Committee would mark up its version.”
According to Lawrence, the Constitution requires that tax bills originate in the House, so the full Senate wouldn’t act until the full House had passed tax reform.
“The goal appears to be a final bill on the president’s desk before they leave for the holidays,” adds Lawrence. “Everything has to go perfectly for that to happen.”
Cadik says if it doesn’t get done by the end of the year, there’s a short window for it to get done in the first quarter of 2018. “After that, it will be difficult for members to run for re-elections without achieving the major goals Congress set out.”
Moss adds he still doesn’t see a clear pathway, especially if lawmakers use reconciliation to do tax reform.
“It’s unfortunate because we have never had tax reform that was partisan. It was always bipartisan,” Moss says. “It becomes much easier when you have people working across the aisle and both sides are getting amendments and participating in the process.”
He adds that bipartisan efforts would allow for more meaningful tax reform and reconciliation leaves blame to one side.