1
Low-Income Housing Tax Credit Legislative Update
Robert RozenWashington Council Ernst & YoungJune 2011
2
Focus of Attention of Housing Credit Community -- 2011
• CORPORATE TAX REFORM
• OBAMA ADMINISTRATION BUDGET PROPOSALS
• LEGISLATION TO EXTEND FLAT CREDIT AMOUNTS
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
4
TAX REFORM DRIVERS
• Job creation• International competitiveness• Economic efficiency• Stability • Simplification• Deficit reduction
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.
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%
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
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.
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.
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.”
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
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).
13
Obama FY 2012 BudgetLow-Income Housing Tax Credit Proposals
Basis boost for Preservation of Federally Assisted Housing
Mixed Income Housing
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
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.
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.
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
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.
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