I have a feeling I should keep the title of this post for repeated future use.
It’s hard to know which of the damaging provisions of the tax bill were intentional, and which were the result of the unseemly haste and secrecy that marked its passage. As I have previously noted, scholars of philanthropy have predicted that it will cause a significant decline in charitable giving. (And yes, it would be nice if people gave money because they simply felt generous, but in the real world, deductibility that makes the gift less costly to the giver is a pretty important factor.)
Now we have reports that the tax bill will dramatically reduce the production of (much needed) low-income housing and the preservation of historic structures.
SAN FRANCISCO — The last time that Congress approved a sweeping overhaul of the federal tax code, in 1986, it created a tax credit meant to encourage the private sector to invest in affordable housing. It has grown into a $9 billion-a-year social program that has funded the construction of some three million apartments for low-income residents.
But the Republican tax plan approved last month amounts to a vast cutback, making it much less likely that such construction will continue apace. Because the tax rate for corporations has been lowered, the value of the credits — which corporations get in return for their investments — is also lower.
“It’s the greatest shock to the affordable-housing system since the Great Recession,” said Michael Novogradac, managing partner of Novogradac & Company, a national accounting firm based in San Francisco.
According to an analysis by his firm, the new tax law will reduce the growth of subsidized affordable housing by 235,000 units over the next decade, compounding an existing shortage.
Then there’s a report from Shelterforce about the effect of the tax bill on a Chicago neighborhood revitalization project and other projects like it.
Urban and rural communities throughout the country have historic buildings that can be preserved and repurposed for multiple community needs.
In addition to revitalizing communities such as Uptown and spurring local economic growth, the HTC returns more to the U.S. Treasury than it takes. According to a study commissioned by the National Park Service, since inception, $25.2 billion in federal tax credits have generated more than $29.8 billion in federal tax revenue from historic rehabilitation projects. The credit generates new economic activity by leveraging private dollars that not only preserve historic buildings but also create jobs; through 2016, the rehabilitation of 42,293 historic buildings has created more than 2.4 million jobs, according to the Historic Tax Credit Coalition.
Though HTCs were preserved in the tax bill passed by Congress, its value was diminished. Instead of allowing investors to take the full value of the credit when a building opens, as they can now, it parcels out the credit over five years. Historic preservationists fear this change will decrease the attractiveness of the credit and consequently negatively impact its pricing. A project seeking $2 million of Historic Tax Credit investments could lose as much as $400,000 in valuable capital. Historic rehabilitation projects frequently have higher costs, greater design challenges, and weaker market locations—all of which can already cause lender and investor bias against such investments.
Another casualty of tax reform is the demise of tax credit bonds. While Private Activity Bonds survived the final assault, new key tools such as Qualified Energy Conservation Bonds (QECB) did not.
Yessir. Some tax “reform.”