Are we having fun yet?
As we settle back in after the Thanksgiving holiday, and while we are hopefully thankful for our families health and happiness, on the legislative front it is a bit of a mixed bag.
Prior to adjourning for the holiday, the House voted in favor of its tax reform bill by a vote of 227 – 205 and while it is not a complete turkey it is pretty close. The bill maintains the Low Income Housing Tax Credit, but it eliminates private activity bonds (PABs), the New Market Tax Credit (NMTC) and the Historic Tax Credit (HTC). Despite our best efforts, those of colleagues in the industry and a number of Republican and Democratic House members, we were unsuccessful in getting PABs restored in the final House bill. We did receive a number of positive indications from leadership and W&M Chairman Kevin Brady (R-TX) with the reassuring wink, “it is in the Senate bill,” so depending on where this all ends up we are hopeful the House goes along with the Senate language. Nonetheless the House bill was a disappointment.
The Senate Finance Committee voted its bill out of committee on a party-line vote of 14-12 and while it is no turkey and included more fixins, it does leave us a little wanting. That bill maintains the LIHTC and PAB’s, maintains the NMTC through the two year extension (through 2019) approved in the 2015 PATH Act and thanks to an amendment from Senator Bill Cassidy (R-LA), keeps the 20% HTC although it would be allocated equally over 5 years. What is lacking in both the House and Senate Finance bills is the LIHTC enhancement fix that would maintain the value of the LIHTC and production levels at the proposed 20% corporate rate. A number of efforts were made in committee to fix this deficiency to no avail although Chairman Orrin Hatch (R-UT) and a number of his Republican colleagues vowed to work with LIHTC champion Senator Maria Cantwell (D-WA) to fix that problem. The issue seems to be stuck in the Joint Committee on Taxation (JCT) who believe the lower corporate rate will encourage investors to accept a lower yield and maintain current pricing. I know! We are producing both economic models and real life examples (how about the current market) of why their assumptions are wholly unrealistic. Welcome to our (DC advocates) world.
We are also working on an issue which hit us out of left field, the Senate Base Erosion and Anti-abuse Tax (BEAT). The issue affects certain U.S. corporations with a foreign parent or affiliate. The proposed “base erosion minimum tax” imposes a tax on certain payments to a foreign parent or affiliate and does not allow any general business credits other than the R&D credit to be taken against the liability. This would include the LIHTC, NMTC and HTC. In short, this would exclude a significant percentage of equity investment in the credits.
So while we work with Senator Hatch, his Republican colleagues and the JCT on these issues we must give thanks for where we are compared to other industries and tax preferences. If the Senate Finance bill were enacted today as is, we would have a tax credit program and PABs. We are still working with Senators Hatch and Cantwell on the LIHTC resource bill (S.548) and hope to incorporate the 50% cap increase and fixed 4% credit into another tax measure before the end of the year or perhaps in early 2018. Everything is still in play so continues advocacy by the industry is essential.
The tax reform debate is far from a done deal as Senators raise concerns about the Finance Committee bill, which is vastly different from the House bill. Debate is scheduled to begin in the Senate on November 29th. Passage in the Senate is far from certain and if it does pass, reconciling the two bills will be very difficult. Add to that the continuing resolution (CR) which expires on December 8th and the potential for Alabama to elect a Democratic senator on December 12th, and you can see why the goal line for this legislation as drafted may yet be a bridge to far.
