The Republican tax plan unveiled today could dramatically reduce the development of affordable housing across the country.
Although housing advocates were still digesting the plan released by House leaders, they are clearly troubled by the initial proposal.
“The bottom line is this bill is not good for affordable housing production,” says David Gasson, executive director of the Housing Advisory Group and vice president of Boston Capital.
The good news is the plan maintains the low-income housing tax credit (LIHTC) program. However, private-activity bonds would be eliminated, which would cut off the flow of 4% LIHTC bond-financed units, which account for over 40% of affordable housing production, says Emily Cadik, director of public policy at Enterprise Community Partners.
The Republican proposal also calls for reducing the corporate tax credit from 35% to 20%. Without modifying the LIHTC program, this change would make the housing credit worth less and could diminish investor appetite.
While the proposal maintains the LIHTC, it does not add value back into the program to make up for the other changes proposed, according to affordable housing industry leaders.
It’s also significant that the historic tax credit, which has been used in conjunction with the LIHTC to rehab historic buildings into affordable housing, and the New Markets Tax Credit (NMTC), which has been used to incentivize community development, are proposed for elimination. The NMTC, which had recently been extended through 2019, would be repealed after this year.
“The House Ways and Means tax reform proposal released today by the majority demonstrates an appalling disregard for low-income rural and urban communities by repealing the federal New Markets Tax Credit program, a vital piece of America’s tax code that has leveraged over $80 billion in public-private investments and created more than 750,000 jobs in some of our country’s poorest neighborhoods and towns,” says Bob Rapoza, spokesperson for the NMTC Coalition, in a statement. “Unfortunately it will be these communities, in addition to the hardworking people living there, that will bear the burden of the omitted NMTC—the very places that can least afford it. This can only be described as penny wise and pound foolish—with repeal of NMTC saving less than $1.8 billion over the 10-year period. Today’s repeal is a serious misstep that will be felt by communities nationwide.”
There’s still much work to do on the bill, dubbed the Tax Cuts and Jobs Act.
“The bill that we saw today is not even going to look the same as the bill that will be marked up next week,” says Cadik, adding that the chairman’s mark, a modified version of today’s bill, is expected early next week with negotiations throughout the weekend.
Cadik urges affordable housing stakeholders to reach out to their members of Congress to convey that changes are needed to protect affordable housing production. She also says there may be opportunities to correct some of the issues on the House bill on the Senate side, where strong support has been seen to expand the LIHTC.
“There are a lot of obstacles to the bill’s passage that we are already seeing today. Large and influential interests are already objecting strongly to provisions in the bill. It will be a very fluid process and might not find a compromise. Everyone is also seeing today that it’s a serious effort to move quickly and to be prepared for any outcome,” she adds.