Encouraging Community Investments through CDFIs: Proposals for a New Federal Tax Incentive

2017
|   By
Rachel Reilly Carroll ,
Enterprise Community Loan Fund, Inc.
Policy Focus September 2017
Summary
Community Development Financial Institutions bring capital to individuals, businesses and communities often overlooked by the conventional financial system, and investments in CDFIs produce social and financial returns. This paper from Enterprise and AI3 outlines two approaches for encouraging these investments through a federal tax credit.
Description

The more than 1,000 Community Development Financial Institutions (CDFIs) across the U.S. serve individuals, businesses and communities often overlooked by the conventional financial system. Dozens of CDFIs raise capital from individual and institutional investors through community investment products that deliver a financial return alongside social benefits. For the most part, income earned on these investments is taxed at the same rate as income from traditional investments that provide no social return, and the amount of investment capital supporting disadvantaged individuals, businesses and communities could be greatly increased if impact investors received a federal tax credit.  This paper from Enterprise and the Accelerating Impact Investing Initiative outlines two proposals for encouraging these investments – a tax exemption on income earned and a tax credit worth a percentage invested.

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