The House and Senate are expected to vote Tuesday on a final tax reform bill, after conference committee Republicans resolved the differences between the House- and Senate-passed versions on December 15.
The final tax bill fails to expand housing resources for people with the lowest incomes, while it provides massive unpaid-for tax cuts for wealthy individuals and corporations and increases the national debt by at least $1 trillion over a decade. This significant increase to the national debt may trigger automatic funding cuts to the national Housing Trust Fund and will likely put future investments in affordable housing at HUD and USDA – a well as other federal resources that help struggling families meet their basic needs – at risk of deep spending cuts. To help pay for the costly bill, Speaker of the House Paul Ryan (R-WI) and other Republican leaders are already advocating for partisan legislation in 2018 to reduce Medicare, Medicaid, and other critical safety net programs.
Overall, the tax bill misses a once-in-a-lifetime opportunity to expand housing investments to address homelessness and housing poverty through the tax code. The bill lowers the amount of a mortgage eligible for the mortgage interest deduction (MID) from $1 million to $750,000 for newly purchased homes, but instead of reinvesting the savings into affordable rental housing where the need is so great, it uses these housing dollars to provide deeper tax cuts for some of the wealthiest individuals in the country. Although the final bill retains the tax exemption for private activity bonds (PABs) and preserves the 9% and 4% Low Income Housing Tax Credit (Housing Credit), it does not include any of the bipartisan reforms that would improve the Housing Credit and help it better reach extremely low income households or people experiencing homelessness. Moreover, the bill fails to adjust the Housing Credit to address its likely reduced ability to generate equity investments due to the lowering of the corporate tax rate from 35% to 21%.
In response to the bill, NLIHC President and CEO Diane Yentel stated, “While the preservation of Low Income Housing Tax Credits and Private Activity Bonds avoids an immediate devastating impact on affordable housing, this bill will exacerbate our country’s already yawning income inequality and will harm efforts to end homelessness and housing poverty. An estimated 64% of the bill’s benefits go to the top 1% of earners, at a cost to the country of over $1 trillion. At a time when we should be increasing investments in solutions to the housing crisis impacting low income people across the country, the increased deficits created by these tax cuts put the national Housing Trust Fund and other vital housing and community development programs at risk of deep spending cuts down the line.”
Mortgage Interest Deduction
The final tax bill redirects housing dollars generated from modest reforms to the MID to provide even deeper tax cuts for billionaires and corporations. The bill lowers the amount of a mortgage eligible for the tax break from $1 million to $750,000 for newly purchased homes. This represents a compromise between the House and Senate versions: the House bill proposed capping the MID benefit to the first $500,000 of a mortgage for new homes and eliminated the deduction for second homes, while the Senate bill proposed no changes to the MID. Instead of reinvesting the savings from the lowered MID cap into affordable rental homes for people with the greatest needs through solutions like the national Housing Trust Fund or a renters’ tax credit, the bill funnels these and other savings to provide even more regressive tax cuts to the top 1% of earners.
Housing Tax Credits
The final tax bill preserves the 9% Housing Credit and maintains the tax exemption for PABs, which are used to finance the construction and rehabilitation of multifamily housing for low income renters under the 4% Housing Credit. The bill does not, however, include any of the bipartisan, much-needed improvements to the program to incentivize developing rental homes affordable to the lowest income families, as proposed by Senators Maria Cantwell (D-WA) and Orin Hatch (R-UT) and Representatives Pat Tiberi (R-OH) and Richard Neal (D-MA). Moreover, the final tax bill does not make any adjustments to the program to offset the impact of the lowered corporate tax rate from 35% to 21%, which will reduce the value of Housing Credits to corporate investors. Some experts estimate that the lowered corporate tax rate will significantly reduce investor demand for the Housing Credit and could result in 20,000 fewer homes built under the program each year.
The final tax bill is an improvement on the House-passed version, which would have eliminated PABs. The 4% credit contributes to upwards of 60% of the affordable homes built or preserved in America each year. By eliminating the 4% Housing Credit, the House tax bill would have resulted in the loss of 80,000 affordable homes annually.
National Housing Trust Fund
According to the Congressional Budget Office, the final tax bill’s significant deficits may trigger cuts called for under the “Pay-As-You-Go Act of 2010.” This Act was designed to limit increases to the national debt by forcing automatic cuts to critical programs, including the national Housing Trust Fund (HTF), which helps build and preserve rental homes affordable to people with the lowest incomes, including those experiencing homelessness. The HTF is a lifeline to the lowest income people who are otherwise forced to choose between paying their rent and buying groceries, visiting their doctor, paying for medications, or saving for a rainy day.
Future Spending Cuts
Like both the House and Senate versions, the final tax bill will increase the national debt by at least $1 trillion over a decade – likely leading to deep spending cuts to critical investments, including those for affordable housing and community development.
The final bill is written to adhere to a congressional budget resolution that called for $5.8 trillion in budget cuts over the next decade, including $800 billion in cuts to discretionary domestic programs. Unfunded tax cuts will only add pressure on Congress to enact these budget cuts at the expense of the millions of low income families who rely on federal investments to help them meet their basic needs.
Republican leaders are already signaling their interest in passing legislation in 2018 to reduce funding for mandatory programs, including Medicare, Medicaid, and other safety net programs. President Trump is expected to issue an executive order directing federal agencies to make other harmful changes to programs that serve people with the lowest incomes.
Read NLIHC President and CEO Diane Yentel’s statement on the final bill at: http://nlihc.org/press/releases/8633