Low-Income Housing Tax Credit Legislative Update

19
1 Low-Income Housing Tax Credit Legislative Update Robert Rozen Washington Council Ernst & Young June 2011

description

Low-Income Housing Tax Credit Legislative Update. Robert Rozen Washington Council Ernst & Young June 2011. Focus of Attention of Housing Credit Community -- 2011. CORPORATE TAX REFORM OBAMA ADMINISTRATION BUDGET PROPOSALS LEGISLATION TO EXTEND FLAT CREDIT AMOUNTS. - PowerPoint PPT Presentation

Transcript of Low-Income Housing Tax Credit Legislative Update

Page 1: Low-Income Housing Tax Credit  Legislative Update

1

Low-Income Housing Tax Credit Legislative Update

Robert RozenWashington Council Ernst & YoungJune 2011

Page 2: Low-Income Housing Tax Credit  Legislative Update

2

Focus of Attention of Housing Credit Community -- 2011

• CORPORATE TAX REFORM

• OBAMA ADMINISTRATION BUDGET PROPOSALS

• LEGISLATION TO EXTEND FLAT CREDIT AMOUNTS

Page 3: Low-Income Housing Tax Credit  Legislative Update

3

CORPORATE TAX REFORM

• Bipartisan interest in reducing corporate tax rates

• Rate reduction financed by cutting back on the cost of “tax expenditures”

• Includes special deductions, credits, deferrals, and other provisions subsidizing certain investments

Page 4: Low-Income Housing Tax Credit  Legislative Update

4

TAX REFORM DRIVERS

• Job creation• International competitiveness• Economic efficiency• Stability • Simplification• Deficit reduction

Page 5: Low-Income Housing Tax Credit  Legislative Update

5

Corporate tax reformCompetitiveness considerations

► High US statutory corporate tax rate► 93% of OECD countries (28 of 30) have reduced their

top corporate tax rate since 2000.

► Average corporate income tax rate for the top 50 countries has fallen from 37.5% in 2000 to 31.9 in 2010, an average drop of 5.6 percentage points.

► Corporate tax rates abroad, both statutory and marginal, have fallen by 30% to 40% over the past two decades.

Page 6: Low-Income Housing Tax Credit  Legislative Update

6

Corporate tax rates in the OECD — 2010

Percent

Note: Includes both federal and subnational corporate tax rates. Sources: Ernst & Young, International Monetary Fund, and Organisation for Economic Co-operation and Development, 2010

Irelan

d

Icelan

d Chil

e

Czech

Rep

ublic

Poland

Slovak

Rep

ublic

Hunga

ry

Turkey

Switzerl

andKore

a

Austria

Denmark

Greece

Netherl

ands

Finlan

d

Sweden

Portug

al

Norway

United

King

dom

Luxe

mbourg

Austra

lia

Mexico

New Zea

landSpa

inIta

ly

Canad

a

German

y

Belgium

France

United

Stat

esJa

pan

0

5

10

15

20

25

30

35

40

45

GDP-weighted Average (excluding US) — 31.3%

Simple Average (excluding US) — 25.5%

Page 7: Low-Income Housing Tax Credit  Legislative Update

7

OECD CORPORATE TAX RATES DROPPING

United States

OECD Average (excl. U.S.)

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

25

30

35

40

45

50

Com

bine

d na

tiona

l and

sub

natio

nal t

op c

orpo

-ra

te ta

x ra

te

2010

Source: Organisation for Economic Co-operation and Development, 2010.

Average OECD statutory corporate tax rates: 1981 - 2010

Page 8: Low-Income Housing Tax Credit  Legislative Update

8

Corporate Tax Reform (continued)

Obama Administration FY 2012 Budget(February, 2011)

In today’s high-tech, global economy, that means the United States must be the best place to do business and the best place to innovate. That will take reforming our tax code, and I am calling for immediate action to rid the corporate tax code of special interest loopholes and to lower the corporate rate to restore competitiveness and encourage job creation—while not adding a dime to the deficit.

Page 9: Low-Income Housing Tax Credit  Legislative Update

9

Corporate Tax Reform (continued)

House Republican Jobs Plan (May 2011)

America’s tax code has grown too complicated and cumbersome, and it is fundamentally unfair. It is filled with loopholes and giveaways. Congress should eliminate the special interest tax breaks that litter the code and reduce the overall tax rate to no more than 25% for businesses and individuals including small business owners.

Page 10: Low-Income Housing Tax Credit  Legislative Update

10

Obama deficit commission report – Dec. 2010

Proposal would eliminate all corporate tax expenditures in order to reduce corporate tax rate to between 23-29%

“Abolishing special subsidies will…create an even playing field for all businesses instead of artificially picking winners and losers.”

Page 11: Low-Income Housing Tax Credit  Legislative Update

11

Corporate Tax Reform Proposals

• Obama Administration, February 2011 budget

• National Commission on Fiscal Responsibility and Reform, 28%, December 2010

• Bipartisan Policy Center, 27%, November 2010

• PERAB (Volcker) report, August 2010 • Wyden-Coats, 24% February 2010 (2011)

• Rangel proposal, 30.5%, October 2007

• Bush Treasury, December 2007

Page 12: Low-Income Housing Tax Credit  Legislative Update

12

Largest business tax expenditures in US (2011–2015)

1. Accelerated depreciation of machinery & equipment

2. Deduction for US production activities

3. Exclusion of interest on tax-exempt bonds

4. Accelerated depreciation on rental housing

5. Low-income housing tax credit

6. Deferral of income from controlled foreign corps

7. Self-employed medical insurance premiums

8. Alcohol fuel credits

9. Expensing research & experimentation expenditures

10. Inventory property sales source rules exception

11. Graduated corporation income tax rates

12. Research and development credit (expired 12/31/09)

13. Charitable contributions deduction

14. Special ESOP rules

15. Exclusion of interest on life insurance

$0 $20 $40 $60 $80 $100 $120 $140 $160

$billions

Note: Includes top 15 business tax expenditures for purposes of the income tax.Source: Fiscal Year 2011 Budget of the United States, Analytical Perspectives, Tax Expenditures (Chap. 16).

Page 13: Low-Income Housing Tax Credit  Legislative Update

13

Obama FY 2012 BudgetLow-Income Housing Tax Credit Proposals

Basis boost for Preservation of Federally Assisted Housing

Mixed Income Housing

Page 14: Low-Income Housing Tax Credit  Legislative Update

14

Basis Boost for Preservation of Federally Assisted Housing

Allow State housing finance agencies to designate certain projects to receive a 30 percent boost in eligible basis. To receive this treatment, a project would have to satisfy the following requirements:

The project involves the preservation, recapitalization, and rehabilitation of existing housing

 The housing demonstrates a serious backlog of capital needs or deferred maintenance

Limited to 0.4% of State’s private activity bond cap

Page 15: Low-Income Housing Tax Credit  Legislative Update

15

Mixed Income Housing

• Permit LIHTC properties to target higher income households, up to 80% of area median income.

• Same percentage of units would have to be targeted to lower income households so that average income targeting remains 60% of AMI.

Page 16: Low-Income Housing Tax Credit  Legislative Update

16

Flat 9% and 4% Credits

Make permanent the current law temporary flat 9% credit amount that expires for property placed in service after 2013.

Extend flat credit amount to 4% acquisition credits.

Page 17: Low-Income Housing Tax Credit  Legislative Update

17

New Markets Tax Credit Program

Legislation to extend program for five years at $5 billion allocation has been introduced in the Senate.

House bill will be introduced in near future.

Program reforms possible (Business Week story)

Treasury proposal to encourage investment in non-real estate businesses

Page 18: Low-Income Housing Tax Credit  Legislative Update

18

Future of LIHTC Program

If corporate tax reform is enacted into law the LIHTC faces a serious threat of being eliminated. To prevent that outcome the entire industry must make a concerted effort to make the case to elected officials why this program must be saved.

Page 19: Low-Income Housing Tax Credit  Legislative Update

19

Talking Points in Support of LIHTC Program

• Created in 1986 as part of tax reform• Public-private partnership that harness market

incentives• Administered by states• Continuing shortage of affordable housing• Supports over 100,000 jobs annually • Widely regarded as the most successful housing

production and preservation program in the nation’s history