This week the White House and top GOP leaders released their tax reform outline entitled "Unified Framework for Fixing Our Broken Tax Code." We are very pleased that the framework includes the Low Income Housing Tax Credit (LIHTC) as one of two credits (R&D) maintained in the tax code. This is a testament to all the work the industry has put into getting Members of Congress out to see LIHTC properties and making them advocates for the program.
The framework proposes both individual and corporate tax rate cuts and collapses the number of individual tax brackets from seven to three. The standard deduction would almost double to $12,000 for a single filer and $24,000 for married couples. The proposed corporate rate is 20% and the proposed rate for pass-through entities and S corps would be 25%. The framework states that "committees will adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate." Needless to say, the framework leaves a lot of work for the committees and we want to stress that these provisions are aspirational. These rates and provisions will likely evolve as this is just the beginning of the process.
There are a number of provisions that affect affordable housing including the expensing provision, the deductibility of business interest and the status of private activity bonds which are not referenced in the framework.
This is the first volley towards an aggressive push to pass a reform plan with a very short legislative calendar for 2017. There is still some debate as to whether the outline released yesterday agrees with President Trump, who continues to call for a 15% corporate rate versus the 20% proposed in the plan. There will be continued debate over the plan once the House and Senate tax writing committees review the revenue effects of the plan. Revenue neutrality remains a goal of Senate Finance Chairman Orrin Hatch, whose focus is clearly on the international reforms contained in the outline.
The next step is for the House and Senate to agree on a unified budget resolution with instructions for tax reform. With the ACA repeal now seemingly off the table, the focus on Capitol Hill will be on tax reform and passing a budget. The House may vote on its version of the budget next week. It is unclear when the Senate will complete its work on the budget but when it does the two chambers will have to reconcile both proposals so the Senate may include reconciliation instructions for tax reform.
As the budget process moves forward, the House Ways & Means and Senate Finance Committees will begin their work on the tax reform framework, a process that promises to be animated, passionate and adversarial. Our industry will be engaged in this process as we ensure that the LIHTC is amended and expanded to meet the frameworks endorsement as a tax incentive that has proven to be effective in promoting policy goals important in the American economy.
Please continue your local efforts to keep your Congressmen and Senators engaged with affordable housing in their districts.