On November 9th, the U.S. Senate Finance Committee released its tax reform proposal. The Senate tax reform proposal, unlike the House version, protects critical affordable housing and community development resources.
The Senate proposal maintains the tax exemption for private activity bonds (PABs), which was eliminated in the House bill. PABs are needed for the 4% Low Income Housing Tax Credit, which is used in Massachusetts to produce and preserve thousands of affordable homes.
The Senate bill also does not eliminate the New Markets Tax Credit and the Historic Tax Credit, both of which were cut in the House bill. These tax credits both support housing and economic development in the Commonwealth. Although the Senate bill retains the Historic Tax Credit, it reduces the percentage of qualified rehabilitation expenses eligible for the credit from 20 percent to 10 percent.
Although the Senate reform bill preserves the Low Income Housing Tax Credit, the value of the credit will be significantly reduced with the proposed dropping of the corporate tax rate from 35% to 20%. Unfortunately, like in the House, there was no proposal to expand or improve LIHTC to offset the changes due to dropping the corporate tax rate.
Also, unlike the House proposal, the Senate plan does not call for any reform to the Mortgage Interest Deduction.
The Senate will begin debate of the tax reform proposal this week.
Meanwhile, the full U.S. House of Representatives is also expected to consider the Ways and Means Committee-approved tax reform this week.
With final votes in both chambers expected before the Thanksgiving recess, the House and Senate would have December to reconcile differences between the tax reform bills and to send a final tax reform bill to the President by the end of the calendar year.