Congress Approves Tax Reform Legislation
The House and Senate have both approved the conference report of the Tax Cuts and Jobs Act. The House passed the bill yesterday by a vote of 227 – 203, with 12 Republicans and all Democrats voting against it, and had to vote again today because of some technical corrections that arose during Senate consideration. It passed the Senate by a vote of 51 – 48 late last night on a party-line vote. The bill has now been sent to the President for his signature.
As we reported on Friday, the Tax Cuts and Jobs Act:
- Lowers the top corporate tax rate from 35 to 21 percent, effective January 1, 2018.
- Retains the Low-Income Housing Tax Credit (Housing Credit), with no modifications. The amendment that Sen. Pat Roberts (R-KS) added to the Senate bill was removed in the final bill. This amendment would have replaced the existing Housing Credit general public use requirement exception for artist housing with one for veterans; treated rural areas as difficult development areas for purposes of receiving a basis boost; and reduced the maximum basis boost for all types of boost-eligible developments from 130 to 125 percent.
- Fully retains private activity bonds (PABs), including multifamily Housing Bonds, which provide critical financing to more than half of all Housing Credit developments and trigger the “4 percent” Housing Credit.
- Retains the New Markets Tax Credit (NMTC) as currently authorized through 2019.
- Retains the historic rehabilitation tax credit (HTC), but extends the credit period from one to five years.
- Creates Qualified Opportunity Zones as proposed under the Investing in Opportunity Act (S. 293), which would incentivize investments in distressed communities through capital gains deferrals.
- Creates a base erosion and anti-abuse tax (BEAT), which would affect banks’ ability to use the Housing Credit and other credits to offset certain taxes related to foreign earnings and earnings going to foreign parent companies. The BEAT provision in the Senate-passed version of the bill would have only allowed one credit – the Research and Development Credit – to be taken against the BEAT, but the conference version also exempts the Housing Credit at 80 percent of the value of the credits. The NMTC and HTC are not allowable credits to be taken against the BEAT.
In a statement, President and CEO Terri Ludwig thanked members of Congress who fought to retain the Housing Credit, Housing Bonds and NMTC, and adds that Enterprise will “continue advocating for improvements to these critical programs, including strengthening and expanding the Housing Credit, enacting the Affordable Housing Credit Improvement Act, and permanently extending the NMTC.”
The new tax system also presents concerns that we will work to address in the coming months. A recent analysis by Novogradac & Co. estimates that the final version of the tax reform bill would reduce affordable rental housing production by nearly 235,000 homes over the next decade due to the lower corporate tax rate and a change to the Housing Credit’s inflation calculation. The vast majority of the impact comes from the loss of investor equity resulting from the reduced corporate rate. The BEAT could have a further negative impact on the Housing Credit equity market, which we are now working to analyze.
GOP leadership has indicated they will consider a follow-up tax bill in 2018, and Enterprise and our partners in the ACTION Campaign will continue advocating for modifications to keep the Housing Credit whole in technical corrections or other follow-on tax legislation. This includes advocating for modifications to the Housing Credit formula to sustain the Housing Credit’s production potential even under the reduced corporate tax rate, as well as modifications to offset the potentially negative impacts of BEAT.
The support for the Housing Credit we witnessed during this recent tax reform debate will be critical as we continue urging Congress to address these concerns and sustain the Housing Credit’s production potential in a new tax system. This includes continued advocacy for modifications to strengthen and expand the Housing Credit, including the common-sense proposals in the Affordable Housing Credit Improvement Act, S. 548 and H.R. 1661.
We look forward to working with Congress to address these concerns, advance the Affordable Housing Credit Improvement Act, extend the NMTC, and strengthen our affordable housing delivery system in 2018 and beyond.