After some last-minute negotiations, House Republicans today released the Tax Cuts and Jobs Act to make sweeping changes to the U.S. tax code. The plan takes a historic step in directly revising the mortgage interest deduction, a $70 billion annual tax expenditure that primarily benefits higher income households, including the top 1% of earners in the country.
The proposal preserves the Low Income Housing Tax Credit Program, but eliminates private activity bonds which are critical to the production and preservation of affordable housing. The bill also eliminates the New Market Tax Credit program.
The House bill calls for slashing the corporate tax rate from 35% to 20% and would benefit wealthy Americans by repealing the alternative minimum tax and phasing out the estate tax.
The legislation is estimated to increase the national deficit by $1.51 trillion over a decade. Increasing the deficit in this way will likely lead to deep spending cuts in the future to important domestic programs, including affordable housing and community development programs.
NLIHC has significant concerns with other provisions in the overall tax bill and further analysis is needed to determine the impact. We will continue to work with our members and partners to ensure that tax reform efforts do not enrich corporations and wealthy Americans at the expense of people with the lowest incomes.
Mortgage Interest Deduction
The tax reform proposal makes sensible reforms in lowering the amount of a mortgage against which the mortgage interest deduction (MID) can be claimed to $500,000 for new home loans and doubling the standard deduction. This change to the MID would impact fewer than 6% of mortgages nationwide and would save an estimated $95.5 billion over the first decade.
However, the legislation uses the savings generated by MID reform to pay for lower tax rates for billionaires and corporations without addressing the affordable housing crisis in America. This proposal is a non-starter.
Instead, Congress should reinvest the savings from MID reform into affordable housing solutions, like the national Housing Trust Fund, rental assistance, or a renter’s credit, that would help the lowest income people in America—including seniors, people with disabilities, families with children, and other vulnerable populations—who too often struggle to pay the rent and make ends meet.
The National Low Income Housing Coalition-led United for Homes campaign calls on the president and Congress to embrace smart reforms to the MID. These include reducing the amount of a mortgage eligible for a tax break from $1 million to $500,000 – impacting fewer than 6% of mortgages nationally – and converting the deduction into a credit, providing a greater tax break to 25 million low and moderate income homeowners, including 15 million mortgage holders who currently do not benefit from the MID. These reforms would generate $241 billion in savings over 10 years that should be reinvested into critical rental housing solutions, like the national Housing Trust Fund and rental assistance, for families with the greatest needs – not used to pay for lowered tax rates for wealthy individuals and corporations.
Low Income Housing Tax Credit
The tax reform preserves the 9% Low Income Housing Tax Credit program (Housing Credit), but it eliminates private activity bonds and the 4% credit, and fails to include any reforms proposed in the Affordable Housing Credit Improvement Act (HR 1661) that was introduced by Representatives Pat Tiberi (R-OH) and Richard Neal (D-MA). HR 1661 is designed to strengthen the Housing Credit program to ensure it better serves our nation’s most vulnerable families.
The Republican tax plan would repeal the tax-exempt status of private activity bonds, which are used to finance the construction and rehabilitation of multifamily housing for low income renters. Investors purchase housing bonds at low interest rates because the income from them is tax-free. The interest savings made possible by the tax exemption is passed on to renters in reduced housing costs. States increasingly combine private activity bonds with other resources—including Housing Credits and HOME Investment Partnerships (HOME) program funds—to serve even lower income families for longer periods of time than law requires.
Because the 4% Housing Credit is only available with debt financing from tax-exempt private activity bonds, the Republican bill essentially eliminates the 4% Housing Credit.
One of the greatest barriers to increasing the supply of affordable housing for those who need it most is the lack of additional, deep-subsidy resources to ensure that the lowest income households in America can afford to pay rents in developments that remain financially sustainable. To overcome this barrier, the Tiberi-Neal bill increases the availability of Housing Credits for developments serving homeless and extremely low income households. The Tiberi-Neal bill also provides states and communities with flexibility to develop and preserve mixed-income developments that would allow even deeper levels of affordability while maintaining financial feasibility.
The Housing Credit may also be impacted by the lowered corporate tax rate, which could reduce demand and decrease the value it generates for affordable housing developments.
Eliminated Tax Credits
The proposal calls for repealing the New Market Tax Credit and the Historic Tax Credit. New Markets Tax Credits are used to help revitalize and spur economic development in low income communities. Historic Tax Credits encourage the preservation and adaptive reuse of certified historic and older buildings and housing developers often pair these credits with Housing Credits to build low income housing.
Earned Income Tax Credit
The House bill retains the earned income tax credit (EITC) but does not expand it to cover low-wage childless workers and noncustodial parents.