Yesterday, House Republicans released their tax reform proposal, The Tax Cuts and Jobs Act, to make sweeping changes to the U.S. tax code. The proposal delivers substantial tax cuts, including a significant reduction in the top corporate income tax rate. To offset the cost of the cuts, many current tax incentives are eliminated or substantially changed in the legislation. The tax reform proposal will either eliminate or seriously impact federal programs used in Massachusetts to create and preserve affordable housing.
The proposal preserves the Low Income Housing Tax Credit (LIHTC) Program and the 9% credit. However, the proposal eliminates private activity bonds and the 4% tax credit which are critical to the production and preservation of affordable housing. The bill also eliminates the New Markets Tax Credit program and the Historic Tax Credit. Additionally, the House bill calls for cutting the corporate tax rate from 35% to 20%, which will significantly decrease the value of LIHTC.
Low Income Housing Tax Credit & Private Activity Bonds
Again, the tax reform proposal preserves the 9% credit but eliminates the tax exemption for private activity bonds (PABs) and the 4% tax credit. PABs are used to finance the construction and rehabilitation of affordable multifamily housing. States often combine PABs with other resources—including LIHTC and HOME program funds—to very low income families. Because the 4% housing tax credit is only available with debt financing from tax-exempt private activity bonds, the Republican bill essentially eliminates the 4% Housing Credit.
LIHTC will also be impacted by the lowered corporate tax rate, which could reduce demand and decrease the value it generates for affordable housing developments.
Next Steps for Federal Tax Reform
Representative Kevin Brady, Chair of the House Committee on Ways and Means, will be marking up the tax reform legislation. Members of the Ways and Committee will have an opportunity to offer amendments during the markup next week. The bill will then be sent to the House floor for a debate and vote. The Senate is expected to release its own tax reform proposal as soon as next week, with a mark-up the week of November 13. Congress' goal is for each chamber to pass tax reform legislation on the floor by Thanksgiving, work out the differences in a conference committee in December, and have the President sign tax reform into law by the end of the year.