Yesterday, the Trump Administration, in conjunction with Republican leadership, released the "
Unified Framework for Fixing Our Broken Tax Code", a plan seeking lower tax rates, a simplified tax code, and economic growth. The framework was drafted by a group known as the "Big 6", consisting of House Speaker Paul Ryan, House Ways and Means Committee Chairman Kevin Brady, Senate Majority Leader Mitch McConnell, Senate Finance Committee Chairman Orrin Hatch, Treasury Secretary Steven Mnuchin and White House National Economic Council (NEC) Director Gary Cohn.
Below is a breakdown of the plans for important affordable housing and community development tools in the Big 6 tax framework:
Low Income Housing Tax Credits (LIHTC): This program is preserved in the framework, and it is noted the tax incentive has "proven to be effective in promoting policy goals important in the American economy."
Municipal Bond Tax Exemption: The framework proposes the retention of the municipal bond tax exemption, but is silent on whether that includes
Private Activity Bonds.
Other Business Credits: The framework "envisions the repeal of other business credits" which could include the New Markets Tax Credit, the Historic Tax Credit, and the Renewable Energy Tax Credits: Investment Tax Credit and Production Tax Credit. It does provide the tax-writing committees with the ability to retain some of these credits "to the extent budgetary limitations allow."
There were many other key components to the tax reform framework affecting businesses, individuals, and international transactions. Listed below are some of the highlights:
Corporate
- Reduces the corporate tax rate to 20%. The average corporate tax rate for the industrialized world is 22.5%.
- Eliminates the corporate alternative minimum tax
- Lowers the tax rate for small businesses, capping the income tax rate for pass-through entities at 25% which is significantly lower than the top rate that these businesses pay today.
- Provides immediate expensing of assets for new investments for at least five years.
- Retains the net interest expense deduction, retains the business interest deduction for small businesses, and the deduction for C corporations is partially limited.
Individual
- Individual rates of 12 percent, 25 percent and 35 percent
- Doubled standard deduction
- Eliminating most itemized deductions-Mortgage interest and charitable giving deductions retained
- Increased Child Tax Credit
- Individual AMT and estate tax repealed
International
- Territorial tax system allowing companies to repatriate profits without incurring additional taxes
- Establishment of base erosion rules, protecting the tax base
This framework was the first big step needed for the Administration to start the push for tax reform. Next, the House and Senate must agree on a FY 2018 budget resolution that includes reconciliation instructions for tax reform. House Speaker Paul Ryan just announced today that they are planning to bring this budget resolution to the floor next week. The House Budget committee did pass a FY 2018 budget resolution before the August recess, but it did not have the votes to pass the full House at that time. The real hurdle for moving a budget resolution and subsequent reconciliation is the Senate. While the reconciliation process only needs a simple majority in the Senate rather than the usual 60 votes, the healthcare vote proved how difficult this can be to achieve with a slim Republican majority.
NALHFA Members Must Act Today:
There are a number of housing tools left vulnerable in this framework. Lowering the corporate tax rate will also have a significant impact on the value of the Low-Income Housing Tax Credit. Here are some actions you can take to protect these important tools:
- Contact your Members of Congress and emphasize the importance of LIHTC, as outlined in the tax reform framework. Urge them to not only retain the credit, but also strengthen and expand the program.
- Urge Congress to include the Affordable Housing Credit Improvement Act as part of tax reform, and make additional modifications to offset the impact a lower corporate tax rate will have on LIHTC projects.
- Urge Congress to protect other critical housing tools such as Private Activity Bonds, the New Markets Tax Credit, Historic Tax Credit, and the Renewable Energy Tax Credits. All these tools play an important role in the development and preservation of affordable housing. At a time when our nation is facing a huge shortage of affordable housing, we cannot afford to lose any resources that help bring more affordable housing to communities.
The NALHFA government relations team will be working hard to urge Congress to protect these affordable housing tools. Stay tuned to NALHFA news for updates on this critical matter.
