The Senate Committee on Finance released “Economic and Community Development: Senate Finance Committee Staff Tax Reform Options for Discussion” after a closed-door Committee meeting on May 15. The document, which summarizes tax reform options related to the economic and community development portions of the tax code, is the sixth option paper released by the Committee.
No recommendations are made in the paper and the options summarized in the paper “are not necessarily endorsed by either the Chairman or Ranking Member.” The introduction to the paper also states, “Members of the Committee have different views about how much revenue the tax system should raise and how tax burdens should be distributed. In particular, Committee members differ on the question of whether any revenues raised by tax reform should be used to lower tax rates, reduce deficits, or some combination of the two. In an effort to facilitate discussion, this document sets this question aside.”
Considerable attention was paid to options to reform the housing portions of the tax code, including the mortgage interest deduction, the low income housing tax credit (LIHTC) program, and tax-exempt bonds.
With respect to the mortgage interest deduction and the LIHTC program, several reform options are listed and briefly expanded on. They are:
- A gradual repeal of the mortgage interest deduction. Examples of a phase out provided include a reduction in the maximum mortgage eligible for the deduction by $100,000 a year for ten years, and a limitation of the value of the deduction to a percentage of each dollar.
- A limitation of the mortgage interest deduction, such as a reduction in the value of the mortgage interest deduction for higher cost-homes, or a reduction in the mortgage interest deduction by denying the deduction for second homes, or limiting the deduction to 28% per dollar, as proposed by the Administration, among other options.
- A conversion of the mortgage interest deduction to an above-the-line credit.
- A conversion of the mortgage interest deduction to a credit. The Common-Sense Housing Investment Act (H.R. 1213) (see article above in Memo) is cited as one proposal where such a change is suggested.
- A repeal of the LIHTC program.
- A replacement of the LIHTC with an equivalent reduction in tax on rental income
- Reform or expansion of the LIHTC. Examples provided include a prohibition of awarding credits to nonprofits controlled by for-profit entities, a limitation on the number of LIHTC units per development, or an elimination of provisions in current law that allow for enhanced credits for projects in certain areas.
- A creation of a non-refundable tax credit for low income renters that could supplement or replace the LIHTC.
NLIHC sent a letter to Committee Chair Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) on March 29, outlining the components of the United for Homes proposal to modify the mortgage interest deduction and apply the revenue raised through the changes to the National Housing Trust Fund.
The Committee has announced plans to release ten option papers in total, each of which will cover a different aspect of the tax code. Chair Baucus and House Committee on Ways and Means Chair Dave Camp (R-MI) continue to indicate their intention to enact comprehensive tax reform in the 113th Congress, though no comprehensive tax reform legislation has been released to date.
Read the full option paper here: http://1.usa.gov/19trj7T
Read the letter to Chair Baucus and Ranking Member Hatch at: http://bit.ly/12ORnrV