Part I in a series that will examine the congressional super committee and the Low Income Housing Tax Credit program
At several points during the debate over raising the debt ceiling, Washington appeared to be headed towards a “grand compromise”. Such a deal would have mixed broad ranging cuts, including cuts to entitlement programs, with revenue-increasing tax reform. While tax reform is certainly not a novel policy proposal, it is one that has gained traction in recent months as politicians and policy-wonks alike have searched for solutions to the country’s mounting debt-crisis. It is also a policy proposal that has drawn the attention of the affordable housing industry, as industry advocates fret over the future of the Low Income Housing Tax Credit in a world without tax-loopholes. The debt-deal that eventually emerged could hardly be labeled grand, but the possibility for a “grand bargain” including tax-reform remains alive, with responsibility for a deal shifted to the so-called “super committee”.
The call for tax-reform has been mounting for months. In November of 2010, the Bipartisan Policy Center’s Debt Reduction Task Force released a report that suggested, “An end to almost all tax expenditures to offset the costs of the much lower tax rates”. The President’s Economics Recovery Advisory Board released a report in August 2010 which called for, “Eliminating specific expenditures [to] improve efficiency while simplifying the tax code”, and perhaps most notable of the slew of reports, The National Commission on Fiscal Responsibility and Reform (more commonly referred to as the Bowles-Simpson report) called for a comprehensive tax reform that would, “Sharply reduce rates, broaden the base, simplify the tax code, and reduce the deficit by reducing the many ‘tax expenditures’—another name for spending through the tax code.”
While the reports agreed on tax expenditure reduction, they disagreed on the scope of the reform. The Commission on Fiscal Responsibility offered two scenarios of expenditure reduction, a “zero-plan” that would, “reduce income tax rates to as low as 8%, 14%, and 23%”, and a less extreme reduction allowing for some remaining tax expenditures. The Bipartisan Policy Center distinguished between expenditures with, “little economic justification” and those that, “promote important social and economic goals”. This distinction is an important one, as industry advocates have been fighting to cast the Low Income Housing Tax Credit as a tool of social policy as opposed to a corporate tax break.
If the tax credit industry was alarmed in the months leading up to the debt-ceiling debacle, indignant might best describe the response to Sen. Tom Coburn (largely symbolic) debt-reduction proposal, which called for an elimination of the program. The plan, entitled “Back in Black: A Deficit Reduction Plan” referred to the LIHTC program as “both inefficient and duplicative.” In response, The Affordable Housing Tax Credit Coalition (a national trade association comprised of many of the major participants involved in the low-income housing tax credit program) issued a rebuttal the proposal, citing numerous justifications for the program, including a recent report by Harvard’s Joint Center on Housing Studies which labeled the LIHTC program, the “most successful federal affordable housing production and preservation program in the nation’s history”.
Now that the responsibility for deficit reduction has shifted to the 12-member congressional “super committee”, the affordable housing industry is left to wonder whether the tax credit program is still in danger. In an attempt to gain a better understanding of how the committee might weigh in on the program, in the coming weeks we will be break down committee’s previous allegiance to affordable housing causes.