With the debate over extending the Bush-era tax cuts coming to a close, Washington has already set it’s sites on broader tax policy issues. A recent New York Times article revealed that a tax code overhaul could become a major component of the President’s tax plans in the coming two years. The suggestion follows recent comments made by the President:
I’ll have the opportunity to make the case that we’ve got to have tax reform, that we’ve got to simplify the system, that we do have to cut spending where it makes sense. But we’re also going to have to make sure that we’ve got a tax code that is fair and that looks after the interest of middle-class Americans and continues to grow the economy.
The President’s comments are supported by a slew of recent reports on the national debt and tax policy. A key component of all three reports is the elimination or signifiant reduction of tax expenditures. Expenditures that all reports indicate account for roughly $1 trillion dollars in lost tax revenue.
The Bipartisan Policy Center’s Debt Reduction Task Force released a report on November, 16th which suggest, “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 which calls for, “Eliminating specific expenditures [to] improve efficiency while simplifying the tax code.”
Most recently, the The National Commission on Fiscal Responsibility and Reform 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 agree on tax expenditure reduction, they disagree on the scope of the reform. The Commission on Fiscal Responsibility offers two scenarios of expenditure reduction, a “zero-plan” that could, “reduce income tax rates to as low as 8%, 14%, and 23%”, and a less extreme reduction allowing for some remaining tax expenditures, “Even after adding back a number of larger tax expenditures, rates would still remain significantly lower than under current law.”
The Bipartisan Policy Center distinguishes between needless expenditures and those that offer an economic benefit, “While some tax expenditures promote important social and economic goals, others have little economic justification”. This is an important distinction for those in the Affordable Housing industry who fear a complete elimination of tax expenditures could mean the end of the LIHTC program.
“We are certainly following the issue very closely”, said Peter Lawrence, senior policy director for Enterprise Community Partners, Inc, “We have made the point of communicating [to the President and Congress] the Low Income Housing Tax Credit program’s 25-year track record of success.”
Both Mr. Lawrence and the reports see the alternative to LIHTC as the expansion of housing vouchers or a new grant program all-together. These limited options make the demise of the tax credit program seem less likely, “We are very skeptical that congress would decide, in the context of discussion on the national debt, to fund an 8 billion dollar grant program.”
Tagged as:
LIHTC,
Obama,
tax code
