The Senate Finance Committee has released a tax reform option paper about economic and community development provisions.  The document is the sixth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system.  The options described in the paper represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts and members of Congress. The Senate Finance Committee offers the following options for the Low-Income Housing Tax Credit (LIHTC), New Markets Tax Credit (NMTC), and Historic Rehabilitation Tax Credit (HTC):

Low-Income Housing Tax Credit (LIHTC):

  1. Repeal the LIHTC
  2. Replace the LIHTC with an equivalent reduction in tax on rental income
  3. Reform or expand the LIHTC
    • For example, allow states to use amounts allocated for private activity bonds for LIHTCs instead, adjust and freeze the discount rate for the LIHTC, prohibit awarding of credits to nonprofits controlled by for-profit entities, limit the number of LIHTC units per project, or eliminate the provisions in current law allowing for enhanced credits for projects in certain geographic areas.
  4. Create a non-refundable tax credit for low-income renters
    • Credit could go to property owners that reduced rents for low-income renters generally to no more than 30% of their income
      • Alternatively, could provide a refundable tax credit to low-income renters
    • Could cap amount of federal credits for allocation by states at, for example, $5 billion
    • Credit could supplement or replace the LIHTCNew Markets Tax Credit (NMTC)

New Markets Tax Credit (NMTC):

  1. Repeal the New Markets Tax Credit
  2. Extend and modify the New Markets Tax Credit
    • Permanently extend the New Markets Tax Credit
    • Index the credit for inflation and allow it to offset AMT liability
    • Prohibit any project benefitting from the New Markets Tax Credit from also receiving any other federal tax benefit, federal grant, or federal loan
    • Prohibit New Markets Tax Credits from being claimed by entities that received TARP funding
    • Prohibit New Markets Tax Credits from being used to support certain projects, such as fast food restaurants

Historic Rehabilitation Tax Credit (HTC):

  1. Repeal the HTC
  2. Reform the credit by, for example, increasing the credit to 30% for certain smaller projects and adding an energy-efficient supplement to the credit

It is important to note that the options provided by Committee members are not necessarily endorsed by either the Chairman or Ranking Member.  Rather, the various choices listed by Finance Committee members are those that have been recommended as viable as far as what can be done for certain tax provisions during the tax reform debate. 

Click here to read the full report.