UPDATE: Congress Passes Tax Reform Measure that Threatens Safety Net Programs, Increases Inequality
While we are grateful to member engagement and advocacy around key priorities in the tax reform bill as several were successfully addressed in the final legislation approved this week, Prosperity Indiana spent the past month urging lawmakers to oppose this bill as it failed to include the kinds of equitable reforms we sought to increase economic opportunities for low- and moderate-income households.
Here are some of the critical highlights for Prosperity Indiana's member interests:
- The Low-Income Housing Tax Credit was retained with no modifications
- The bill also fully retains private activity bonds, including multifamily housing bonds
- The bill retained the 2018 and 2019 new markets tax credit (NMTC) allocation application rounds
- The bill retained the Historic Tax Credit, but revised the credit. Now, investors will claim the HTC over five years instead of at placed in service which had been the law
- The bill lowered the amount of a mortgage eligible for the mortgage interest deduction (MID) from $1 million to $750,000 for newly purchased homes, but, unfortunately, used the savings to pay for tax cuts that benefit corporations and wealthy individuals instead of using the savings to invest in expanding the availability of urgently needed affordable housing stock
- By lowering the top corporate tax rate from 35 to 21 percent, effective January 1, this bill will only serve to increase income inequality. The lowered rate also reduces the value of the Housing Credit, which will decrease the number of affordable homes produced.
- The Congressional Budget Office estimates that the tax cuts will increase the national debt by over $1 trillion over a decade, which would likely trigger automatic funding cuts to federal programs, including critical community development programs within HUD, USDA and the Housing Trust Fund. That would jeopardize funding for the Housing Trust Fund. Additionally, Speaker Ryan (R-WI) has already announced plans for entitlement reform legislation in 2018 to shrink the budgets for Medicare, Medicaid, and other critical safety net programs in order to reduce the federal debt implications.
Prosperity Indiana’s advocacy will continue as we fight to protect critical safety net and community development programs moving forward.
Congress is currently debating tax reform proposals that will have dramatic implications for community development programs and incentives, such as the Low Income Housing Tax Credit, New Markets Tax Credit, Private Activity Bonds, Child Tax Credit, and Mortgage Interest Deduction.
Prosperity Indiana members are urged to click today on the link below to send a pre-drafted letter to your senators and member of Congress. The letter urges them to enact equitable tax reform that increases economic opportunities for low- and moderate-income households and helps promote community prosperity.
Simply add your name and any examples applicable to your work to illustrate why these actions are important to you, enter your address, and submit! Your letter will be automatically sent to Senator Young, Senator Donnelly, and your Representative.
Full text of the letter is included below:
"As your constituent and an advocate for strong Hoosier communities, I urge you to stand up for equitable tax reform that empowers low-and middle-income households and promotes job growth and economic prosperity throughout our state.
Congress is debating tax reform proposals that will have enduring policy implications. This reform will shape how individuals access economic opportunity and how local communities respond to the needs of its citizens. As such, I urge you to ensure the following provisions are included in tax reform legislation.
Reform the Mortgage Interest Deduction: Congress must reform the mortgage interest deduction (MID) by lowering the amount of a mortgage on which a deduction can be claimed from $1 million to $500,000 and eliminate the deduction eligibility for second homes. In Indiana, only .8% of mortgages are higher than $500,000. Savings from the MID are better directed at housing supports for Hoosiers in need of access to quality affordable rental housing. In times of scarce federal resources to support the lowest income Hoosiers, the MID savings should be dedicated to addressing the urgent lack of affordable and stable housing through increased investments in the National Housing Trust Fund, rental assistance, and proven solutions to end homelessness. While housing appears affordable in our state, the reality is that renters earning minimum wage in Indiana have to work 67 hours per week to afford a one-bedroom rental home at Fair Market Rent and 84 hours per week to afford a two-bedroom, which introduces significant barriers to low-income families.
Preserve Private Activity Bonds: Tax-exempt Private Activity Bonds (PABs) are a crucial financing tool that spurs local economic development in vital housing, infrastructure, and public facilities. Multifamily and single-family mortgage revenue private activity bonds help ensure there is an adequate supply of affordable housing. Roughly half of all low-income housing tax credit (LIHTC) developments utilize PABs and 4% tax credits. Any effort to eliminate PABs would mean communities throughout Indiana would have a more difficult time financing these projects; and local governments would have to borrow at higher interest rates, resulting in a drastic cut in the production and preservation of affordable housing in our state.
Protect the Low Income Housing Tax Credit: In addition to preserving PABs, I urge you to support ongoing investments in affordable housing production by implementing reforms to the LIHTC program and offsetting proposed cuts in the corporate tax rate. From 1987 through 2015, LIHTCs have financed 7,224 affordable apartments in Indiana and generated $6.13 in billion local income. In 2015 alone, they helped to finance 13 affordable housing developments with 2,023 apartments in our state. However, reductions in the corporate tax rate negatively affect the amount of LIHTC equity that can be raised. I ask you to help increase the amount of allocable LIHTCs and modernize the formula by which the annual LIHTC percentage is determined to ensure these developments remain financially feasible.
Maintain the Historic Tax Credit: The Historic Credit encourages private investment in the rehabilitation of historic buildings, attracting over $131 billion in private capital nationwide since its inception. These investments help finance the gap between development costs and what banks will lend to rehabilitate historic buildings that are often abandoned to return them to productive use.
Include a permanent extension of the New Markets Tax Credit (NMTC): The NMTC program incentivizes private investors to pursue businesses or economic development projects located in distressed, low-income communities. Between 2003 and 2014, $385.7 million in NMTC investments leveraged an additional $109.6 million from other sources for a total of $495.3 million in project financing to 44 projects and businesses in Indiana. There are no other federal tax incentives dedicated to promoting economic revitalization in distressed communities.
Ensure that the Child Tax Credit and Earned Income Tax Credit help low-income families: I ask that you work to ensure the Child Tax Credit and Earned Income Tax Credit programs, and any expansions or adjustments to refundability, are targeted to help boost the incomes of low- and moderate-income families. Doing so will enable them to pay for childcare, engage in the workforce, and better achieve financial stability.
Lastly, I ask that you ensure any cuts in corporate tax rates are not offset by budget cuts to critical social safety net programs that would destabilize our communities. Thank you for your consideration of these proposals to help align scarce federal resources with policies that empower individual households and promote prosperity."
