On Wednesday, September 27, 2017, Republicans unveiled an outline for tax reform. It is the product of many meetings over the past months between “The Big Six” (Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, Senate Finance Committee Chairman Orrin Hatch, House Ways and Means Committee Chairman Kevin Brady, Treasury Secretary Steven Mnuchin, and National Economic Council Director Gary Cohn).
While the 9-page “Unified Framework For Fixing Our Broken Tax Code” is silent on many critical details, one key feature is a 20% corporate tax rate. This lower rate potentially creates two snags for the tax-incentivized real estate industry. First, to mitigate federal revenue losses, the plan “envisions the repeal” of many business tax credits. Fortunately, it specifically keeps the Low Income Housing Tax Credit:
“The framework explicitly preserves business credits in two areas where tax incentives have proven to be effective in promoting policy goals important in the American economy: research and development (R&D) and low-income housing.” (p.8)
The framework keeps the door cracked open for preserving other credits noting “the committees may decide to retain some other business credits to the extent budgetary limitations allow.” By explicitly preserving the LIHTC but neglecting to mention the New Markets, Historic Rehabilitation, and Renewable Energy Tax Credits, it may mean negotiations will start with those programs in repeal – advocates will have to prove the value of such credits as above the need to offset proposed tax cuts.
Now for the second potential “snag”: a 20% corporate tax rate significantly devalues tax credits (simply put, if corporations owe less in taxes, they have less need to offset their tax liability with tax credits). Many see the 20% rate as “aspirational” with a potentially higher rate emerging from congressional negotiations. Still, any significant rate reduction makes improvements to the LIHTC necessary for the program to continue production and preservation of affordable housing at current levels. The Affordable Housing Credit Improvement Act (S. 548) from Sens. Cantwell (D-WA) and Hatch (R-UT) and similar legislation in the House from Rep. Tiberi’s office could be part of the solution – and with Sen. Hatch serving as one of the Big Six, we are hopeful that this legislation is already being considered as a piece of the tax reform puzzle.
The big question is, will any of this happen in 2017? The stated expectation of the Big Six is to get legislation enacted by the end of the year; however, many on Capitol Hill have noted that an overhaul of the tax code is a mighty task – one that is likely too great for Congress to pull off by the end of this year (the House has just 37 legislative days remaining), especially considering the difficulties Republicans faced in recent failed attempts to pass health care reform. Congress has a busy schedule ahead of it too – further work is needed for disaster recovery efforts post Hurricanes Harvey, Irma, and Maria, and the Federal Government is currently operating on a three month Continuing Resolution – the appropriations debate come December will be a healthy one. In all likelihood, tax reform will be debated well into 2018.
As big a success as it is for our industry that the low-income housing tax credit was included in the framework, our advocacy work is only just beginning. This proposal may change significantly when the committees begin their work so we must be vigilant. Furthermore, the framework is silent on tax exempt housing bonds as well as the Historic, New Markets and Renewable Energy Tax Credits. These resources are critical to our affordable housing and community development work and we will continue to work alongside our industry partners to educate the Administration as well as House and Senate tax writing committees and their staff on the importance that these programs be preserved and enhanced in the final legislation.
Questions? Contact NH&RA for details at 202-939-1750 or info@housingonline.com.
NH&RA will continue to update this story as additional details become available.
