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Senate Tax Proposal Protects Critical Affordable Housing Resources but Fails in Other Critical Areas
National Low Income Housing Coalition
November 13, 2017
The Senate tax reform proposal unveiled on November 9 protects a critical housing resource by maintaining the tax exemption for private activity bonds (PAB), an exemption eliminated in the House tax bill.  PABs are required for the 4% Low Income Housing Credit (Housing Credit), which finances the construction and rehabilitation of tens of thousands of affordable homes each year. The Senate bill also does not eliminate the New Markets Tax Credit program as the House bill would.  Both the Senate and House tax proposals fail, however, to improve the Housing Credit or to pursue one of the best and most immediate ways provide more affordable rental homes for people with the lowest incomes through reinvesting savings from mortgage interest deduction reforms.
Across the nation, there are just 35 homes affordable and available to every 100 extremely low income families. Due to chronic underfunding of critical affordable housing programs, three out of four low income households in need are turned away from receiving assistance. Most of these families pay more than half of their incomes on rent with little left for other basic necessities like food, medicines, daycare, and transportation. They live on the cusp of homelessness or are one of the half-million people who have no homes.
Senate Plan Maintains Regressive Federal Housing Policy
Like the House bill, the Senate tax proposal calls for raising the standard tax deduction, which would lead to fewer households claiming the mortgage interest deduction (MID), a $70 billion annual tax expenditure that primarily benefits higher income households—including the top 1% of earners in the country. Doubling the standard deduction without reforming the MID makes the MID even more regressive than it is today—it is estimated that only 6% of tax-payers, only some of the highest income households with the largest mortgages, would benefit from the MID.
The Senate tax proposal fails to reform the MID as the House bill would. The House legislation make sensible reforms to the MID by reducing the amount of a mortgage on which the MID could be claimed from $1 million to $500,000 for new homes and eliminating the availability of the deduction for second homes. These changes to the MID would impact fewer than 6% of mortgages throughout the country and would save an estimated $95.5 billion over the first decade.
The House reforms to the MID are a good and historic first step. Unfortunately, instead of using the savings from MID reform to better target spending on rental housing solutions for those with the greatest needs, the House Republicans funnel these and other savings to pay for highly regressive tax cuts for the richest households and corporations.
The National Low Income Housing Coalition-led United for Homes campaign calls on the president and Congress to embrace smarter reforms to the MID. These include reducing the amount of a mortgage eligible for a tax break from $1 million to $500,000 and converting the deduction into a credit, providing a greater tax break to 25 million low and moderate income homeowners, including 15 million mortgage holders who currently do not benefit from the MID. These reforms would generate $241 billion in savings over 10 years that should be reinvested into critical rental housing solutions, like the national Housing Trust Fund and rental assistance, for families with the greatest needs – not used to pay for lowered tax rates for billionaires and corporations.
Senate Plan Protects PABs and Housing Credit, But Fails to Expand and Improve the Credit
Both the Senate and House Republican tax bills preserve the 9% Housing Credit. Unlike the House bill, however, the Senate proposal maintains the tax exemption for PABs, which are used to finance the construction and rehabilitation of multifamily housing for low income renters. Because the 4% Housing Credit is only available with debt financing from PABs, the House bill essentially eliminates the 4% Housing Credit by taking away the PAB’s tax exemption. The 4% credit contributes to upwards of 60% of the affordable homes built or preserved in America each year.  By eliminating the 4% Housing Credit, the House tax bill would result in the loss of 80,000 affordable homes annually.
Both the Senate and House plans fail to expand the Housing Credit or include much-needed improvements to the program to incentivize developing rental homes affordable to the lowest income families, as proposed by Senators Maria Cantwell (D-WA) and Orin Hatch (R-UT) (expansion and improvements) and Representatives Pat Tiberi (R-OH) and Richard Neal (D-MA) (improvements).
Senate Plan Increases Likelihood of Future Spending Cuts
Both the Senate and House tax plans would increase the federal debt by $1.5 trillion over a decade – a move likely to lead to deep spending cuts to critical investments, including those for affordable housing and community development. Both bills are written to adhere to a congressional budget resolution that called for $5.8 trillion in budget cuts over the next decade, including $800 billion in cuts from the non-defense discretionary side of the budget. Unfunded tax cuts will only add pressure on Congress to enact these budget cuts at the expense of the millions of low income families who benefit from federal investments that help them meet their basic needs.
Take Action
Instead of pursuing the current tax proposals, Congress should work on bipartisan legislation that:
  • Seizes a once-in-a-generation opportunity to rebalance federal housing policy by reforming the mortgage interest deduction and reinvesting the savings into solutions to end homelessness and housing poverty, like the national Housing Trust Fund and a renter’s tax credit.
  • Preserves and expands the Low Income Housing Tax Credit program and includes bipartisan reforms designed to strengthen the program to better serve our nation’s lowest income households.
  • Preserves the tax exemption for private activity bonds that support the construction and preservation of affordable housing throughout the country.
  • Avoids increased deficits and, with them, future spending cuts to critical affordable housing and other social safety net programs.
  • Does not ignore the basic needs, including housing needs, of low income families to give massive tax breaks to the wealthiest households and corporations.
The Senate Finance Committee will begin debate of the proposal on November 13 at 3:00 pm ET.
Learn more about the Senate bill at:
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