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GOP Tax Plan: Reduces Affordable Rental Housing by Nearly 300,000 Homes; Harms Veterans
There are multiple Republican tax plans that are difficult to keep up with. The House, Senate, and White House each have their own plans. The Democrats in office will have no say in the matter. The underlying theme is to cut taxes as much as possible for the wealthiest. It's difficult to uncover and track the many hidden gems within their devious plans but Smart Dissent will try to share as many as we can.
We as individuals must undertake Smart Dissent by speaking up loudly and hoping numerous Republicans in Congress see the light.
The United States has a Low-Income Housing Tax Credit Program (LIHTC) established by the Tax Reform Act of 1986. It gives incentives via tax savings for private corporations to invest and fun the development of affordable housing aimed at low-income Americans. For example, major corporations such as Bank of America and General Electric invest with small real estate developers across the country to build traditional-looking apartments. However these apartments have strict rental rate restrictions typically for 15 years on all units yet must be operated professionally and appear to the public as no different than a market rate apartment complex. These real estate investments would not make financial sense but for the significant tax breaks the corporations receive in exchange for funding affordable housing. The LIHTC program accounts for approximately 90% of all affordable rental housing created in the United States today.
The Tax Cuts and Jobs Act, tax reform legislation introduced by Senate Finance Committee Chairman Orrin Hatch, R-Utah, would reduce the future supply of affordable rental housing by nearly 300,000 homes over 10 years.
Specifically, the following changes proposed by the bill would result in fewer rental homes built or renovated by the low-income housing tax credit (LIHTC):
- Lower corporate tax rate from 35 percent to 20 percent,
- Change the depreciation and interest deductibility of LIHTC propertis, and
- Change inflation factor for future LIHTC and private activity bond allocations from CPI-U to “chained CPI”
Focusing primarily on #1 above, the simple fact that corporate taxes are slashed under the Republican tax proposals means the math behind a corporation funding affordable housing no longer makes sense. They will be paying so much lower taxes that the need to acquire tax credits through affordable housing investment is diminished greatly.
The reduction of the top corporate tax rate from 35 percent in 2017 to 20 percent in 2019 would reduce the tax loss benefits of LIHTC investments, since the value of depreciation expense deductions would be reduced. Novogradac & Company analysis found that lowering the corporate tax rate to 20 percent would reduce LIHTC equity by about 15 percent, translating to $1.8 billion or more in loss equity annually. This loss of investor equity translates into loss of 195,900 to 217,200 affordable rental homes, or more, over 10 years.
Looking at the three factors combined, the conclusion is more dire.
On balance, it appears that the current draft of Chairman Hatch’s tax reform legislation would reduce the total amount of LIHTC-financed affordable rental homes by about 267,000 to 293,000, or more, over 10 years. Furthermore, given the lower financial feasibility under a lowered corporate rate, the changes would also result in rental homes that would likely serve higher average income levels, provide fewer amenities and/or social services.
One report points out that Veterans will be impacted dramatically, particualrly by the GOP House tax plan.
A nonprofit that offers housing and services to veterans this week purchased a 528-unit portfolio in suburban Chicago, but officials said similar deals could be imperiled by the House tax-overhaul bill passed last week. Invest in America’s Veterans Foundation financed the purchase....using tax-exempt private activity bonds, which the tax bill would eliminate.
The model relies on tax-exempt bonds, which offer investors yield while allowing the group to serve lower-income tenants. Republicans are looking for ways to finance tax cuts.... “If the private activity bond program goes away, it puts a major complication in our efforts to service veterans,” said Christopher Walker, a lawyer and board member for the foundation.
Sources:
https://www.wsj.com/articles/gop-tax-plan-could-stymie-veterans-housing-provider-1511301270