1 Low-Income Housing Tax Credit Legislative Update Robert Rozen Washington Council Ernst & Young June 2011

2 Focus of Attention of Housing Credit Community CORPORATE TAX REFORM OBAMA ADMINISTRATION BUDGET PROPOSALS LEGISLATION TO EXTEND FLAT CREDIT AMOUNTS

3 CORPORATE TAX REFORM Bipartisan interest in reducing corporate tax rates Rate reduction financed by cutting back on the cost of “tax expenditures” Includes special deductions, credits, deferrals, and other provisions subsidizing certain investments

4 TAX REFORM DRIVERS Job creation International competitiveness Economic efficiency Stability Simplification Deficit reduction

5 Corporate tax reform Competitiveness considerations ► High US statutory corporate tax rate ► 93% of OECD countries (28 of 30) have reduced their top corporate tax rate since ► Average corporate income tax rate for the top 50 countries has fallen from 37.5% in 2000 to 31.9 in 2010, an average drop of 5.6 percentage points. ► Corporate tax rates abroad, both statutory and marginal, have fallen by 30% to 40% over the past two decades.

6 Corporate tax rates in the OECD — 2010 Percent Note: Includes both federal and subnational corporate tax rates. Sources: Ernst & Young, International Monetary Fund, and Organisation for Economic Co-operation and Development, 2010

7 OECD CORPORATE TAX RATES DROPPING United States OECD Average (excl. U.S.) 2010 Source: Organisation for Economic Co-operation and Development, Average OECD statutory corporate tax rates:

8 Corporate Tax Reform (continued) Obama Administration FY 2012 Budget (February, 2011) In today’s high-tech, global economy, that means the United States must be the best place to do business and the best place to innovate. That will take reforming our tax code, and I am calling for immediate action to rid the corporate tax code of special interest loopholes and to lower the corporate rate to restore competitiveness and encourage job creation—while not adding a dime to the deficit.

9 Corporate Tax Reform (continued) House Republican Jobs Plan (May 2011) America’s tax code has grown too complicated and cumbersome, and it is fundamentally unfair. It is filled with loopholes and giveaways. Congress should eliminate the special interest tax breaks that litter the code and reduce the overall tax rate to no more than 25% for businesses and individuals including small business owners.

10 Obama deficit commission report – Dec Proposal would eliminate all corporate tax expenditures in order to reduce corporate tax rate to between 23-29% “Abolishing special subsidies will…create an even playing field for all businesses instead of artificially picking winners and losers.”

11 Corporate Tax Reform Proposals Obama Administration, February 2011 budget National Commission on Fiscal Responsibility and Reform, 28%, December 2010 Bipartisan Policy Center, 27%, November 2010 PERAB (Volcker) report, August 2010 Wyden-Coats, 24% February 2010 (2011) Rangel proposal, 30.5%, October 2007 Bush Treasury, December 2007

12 Largest business tax expenditures in US (2011–2015) $billions Note: Includes top 15 business tax expenditures for purposes of the income tax. Source: Fiscal Year 2011 Budget of the United States, Analytical Perspectives, Tax Expenditures (Chap. 16).

13 Obama FY 2012 Budget Low-Income Housing Tax Credit Proposals Basis boost for Preservation of Federally Assisted Housing Mixed Income Housing

14 Basis Boost for Preservation of Federally Assisted Housing Allow State housing finance agencies to designate certain projects to receive a 30 percent boost in eligible basis. To receive this treatment, a project would have to satisfy the following requirements: The project involves the preservation, recapitalization, and rehabilitation of existing housing The housing demonstrates a serious backlog of capital needs or deferred maintenance Limited to 0.4% of State’s private activity bond cap

15 Mixed Income Housing Permit LIHTC properties to target higher income households, up to 80% of area median income. Same percentage of units would have to be targeted to lower income households so that average income targeting remains 60% of AMI.

16 Flat 9% and 4% Credits Make permanent the current law temporary flat 9% credit amount that expires for property placed in service after Extend flat credit amount to 4% acquisition credits.

17 New Markets Tax Credit Program Legislation to extend program for five years at $5 billion allocation has been introduced in the Senate. House bill will be introduced in near future. Program reforms possible (Business Week story) Treasury proposal to encourage investment in non-real estate businesses

18 Future of LIHTC Program If corporate tax reform is enacted into law the LIHTC faces a serious threat of being eliminated. To prevent that outcome the entire industry must make a concerted effort to make the case to elected officials why this program must be saved.

19 Talking Points in Support of LIHTC Program Created in 1986 as part of tax reform Public-private partnership that harness market incentives Administered by states Continuing shortage of affordable housing Supports over 100,000 jobs annually Widely regarded as the most successful housing production and preservation program in the nation’s history