What Will Tax Reform Mean for the LIHTC?

What will tax reform mean for the future of the low-income housing tax credit (LIHTC)?

BY DONNA KIMURA (Affordable Housing Finance, March 2013)

The tax reform threat and its potential impact on the LIHTC is real, and we need to continue to make sure our representatives know the program and the good work our industry is doing. While the program has support in both [parties], there are at least two ways the threat could play out: across-the-board reduction or elimination of all tax expenditures; or a change in the tax code that would greatly diminish the credit’s value. The second, in my opinion, is the greater threat. If tax expenditures are targeted, we will hopefully be able to force a conversation about the value of these programs. However, if there is agreement to alter the tax code to lower corporate tax rates, it will be very difficult to overcome that with an argument that the impact would be detrimental to an otherwise worthy program. There is no substitute for the LIHTC program, and no one believes that an appropriated housing program would be created to replace it, so if there is to be a future for affordable housing, we have to engage in this discussion.

— Deborah VanAmerongen, strategic policy adviser, Nixon Peabody

Tax reform is a desirable goal for our nation. It does not, however, require the elimination of all tax deductions and credits. It does not compel Congress to start over with a clean slate, destroying credits and deductions that have made us a better society. The LIHTC is one of the most successful housing programs in American history and is embraced by lawmakers of all political stripes. Not only is such housing created privately, but it’s administered and maintained privately, as investors and lenders are engaged in the long-term compliance of their housing to ensure the protection of their investments. The affordable housing industry should confidently embrace the tax reform agenda, secure in the knowledge that the LIHTC must remain a part of housing policy for decades to come. As a community, we need to understand that elimination of the LIHTC will not happen and advance our discussion to what changes we need in the LIHTC for the 21st century.

— J. David Heller, principal, The NRP Group

If the Congress follows through with its stated intention of a comprehensive evaluation of the tax code, the LIHTC will be a target of intense scrutiny. What will decide the fate of specific tax expenditures is the ability of their constituencies to convince Congress that their tax preference is vital to the public good, an efficient use of government resources, and the most practical way to meet the policy goal of the expenditure. Our advocates within the Congress and the broader housing audience believe the LIHTC meets these standards, but it will be incumbent upon the larger tax credit industry to build a level of support within the Congress that will secure the LIHTC’s future in whatever tax structure results from this reform endeavor.

— David Gasson, executive director, Housing Advisory Group, and vice president, Boston Capital

The credit is at risk if Congress pursues a clean-sweep approach to comprehensive tax reform, and housing advocates need to fight to protect and strengthen the LIHTC. Fortunately, by making tax cuts permanent for most households, the fiscal cliff deal removed a major impetus for comprehensive tax reform and reduced the likelihood the LIHTC will be swept away. Moreover, passing comprehensive tax reform would require sustained bipartisan effort, which seems a dim prospect. Nonetheless, we must make sure Congress understands the LIHTC’s benefits. And we should strengthen the LIHTC to ensure it retains broad support—starting with reform of the Community Reinvestment Act to promote LIHTC investment beyond major metro areas and enactment of the administration’s proposal for mixed-income LIHTC properties.

— Amy Anthony, president and CEO, Preservation of Affordable Housing

What we’ve been hearing of late is that the odds of tax reform taking place in the Senate is greatly diminished—any bill that raises revenues (increases taxes) is very likely to be filibustered and stall. Any bill coming out of the House will propose unpopular individual and corporate tax-break elimination or reduction, resulting in rancor among constituents and corporate supporters, and face defeat in the Senate. Regardless, we will not let down our guard and will continue to educate new members and remind others as to the importance of the program. Without the housing credit, affordable housing will not be produced. We have strong support for the program in the Senate Finance Committee and, while we have supporters in the House Ways and Means Committee, we need many more to be sure our program is not swept up in a frenzied attempt at tax reform at any time in the future.

— Ronne Thielen, executive vice president, R4 Capital