On December 7, House Ways and Means Committee Chairman Kevin Brady (R-TX) released a proposal to temporarily extend a package of tax provisions that expired at the end of 2014, including a provision that would set minimum tax credit rates for housing projects that receive Low Income Housing Tax Credits (LIHTCs) prior to 2017. The proposal is a fallback plan in case House and Senate negotiators fail to agree to a larger tax extenders bill that would make certain tax provisions permanent and is estimated to cost $750 billion over ten years. The Joint Committee on Taxation estimates that the Brady proposal for two year extensions will cost $108 billion over ten years.
Chairman Brady’s proposal would extend the minimum tax credit rate at a fixed 9% for new construction and substantial rehabilitation projects. The proposal does not, however, establish a minimum fixed 4% tax credit rate for acquisition projects. The two-year extension would be applied retroactively to January 1, 2015 and run through the end of 2016. Without the extension, LIHTC projects would continue to receive a floating tax credit rate based on a formula that uses the federal cost of borrowing. As federal borrowing rates have reached historically low levels, so too have housing tax credit rates. For example, the credit rate for new construction or significant rehabilitation is 7.49% in December. When credit rates drop, LIHTC developers receive less equity to fund their projects.
The Brady proposal also includes a two-year extension of the New Markets Tax Credit and a two-year extension of a provision allowing recipients of the military basic allowance for housing to exclude that allowance from their income for the purpose of determining eligibility for LIHTC-assisted housing.
Lawmakers continue to negotiate the broader tax deal, which some want to combine with the omnibus spending bill. Democrats want a permanent extension of the expanded Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). These programs were expanded under the 2009 “American Recovery and Reinvestment Act,” but the expansions are set to expire at the end of 2017. Republicans want new “program integrity” checks in the EITC and CTC programs to prevent fraud.
Minority Leader Nancy Pelosi (D-CA) has demanded that the CTC be indexed for inflation so that it does not lose value over time. Republicans object to the indexing. This impasse may force lawmakers to take up Chairman Brady’s backup proposal, which does not extend the EITC or the CTC. Leader Pelosi has criticized the larger tax deal as benefiting mostly corporations and has stated that the deal enjoys “very little” support among House Democrats.
Ms. Pelosi also opposes combining the tax measure with the omnibus spending bill. The legislative text of the tax deal may be released with the omnibus spending bill on Monday, December 14.
Read the Brady proposal here: http://waysandmeans.house.gov/wp-content/uploads/2015/12/BILLS-114hr34eas-AMNT1.pdf
Read the section-by-section summary of the Brady proposal here: http://waysandmeans.house.gov/wp-content/uploads/2015/12/WM-extenders-2015-2016-summary-12-7-2015-FINAL.pdf