Administration, Congress Release “Big 6” Unified Tax Reform Framework, Explicitly Retains LIHTC

Published by Michael J. Novogradac on Wednesday, September 27, 2017 - 12:00AM

Today the Trump administration and Republican congressional leadership released a “Unified Tax Reform Framework,” outlining the consensus principles to guide consideration of tax reform in Congress this fall.  The framework was largely drafted by the so-called “Big 6,” a group of congressional leaders and senior administration officials:  House Speaker Paul Ryan, House Ways and Means Committee Chairman Kevin Brady, Senate Majority Leader Mitch McConnell, Senate Finance Committee Chairman Orrin Hatch, Treasury Secretary Steven Mnuchin and White House National Economic Council (NEC) Director Gary Cohn.

The framework explicitly retains the low-income housing tax credit (LIHTC), a tremendous achievement for the affordable housing community given that the only other corporate tax credit the framework explicitly proposes to retain is the research and development credit. The document says:

“The framework explicitly preserves business credits in two areas where tax incentives have proven to be effective in promoting policy goals important in the American economy: research and development (R&D) and low-income housing. While the framework envisions repeal of other business credits, the committees may decide to retain some other business credits to the extent budgetary limitations allow.”

Although the LIHTC is explicitly retained, it is important to note that when former House Ways and Means Committee Chairman David Camp proposed to retain the LIHTC and provide a modest increase in 9 percent allocations in his tax reform legislation, he also included a number of damaging LIHTC proposals, such as the repeal of private activity bonds, including multifamily tax-exempt bonds, which finance about 40 percent of all LIHTC affordable homes annually.  The framework released today does propose retaining the municipal bond tax exemption, but it is unclear whether that proposal includes private activity bonds.

While the framework “envisions the repeal of other business credits,” such as the new markets tax credit (NMTC), the historic tax credit (HTC) and the renewable energy tax credits: investment tax credit (ITC) and production tax credit (PTC) it does provide some wiggle room for the tax-writing committees to retain tax credits if they can fit within the budgetary constraints necessary for tax reform to be considered under budget reconciliation.  Because the community development tax credits don’t have a large budgetary impact, it would appear that NMTC, HTC, PTC and ITC advocates will have a reasonable chance to argue for their continuation in a post-reformed code.

The framework suggests using a more accurate measure of inflation for indexing tax brackets and other tax parameters, replacing the consumer price index (CPI) inflation factor with “chained CPI.” This would reduce future LIHTC and private activity bond allocations (as well as potentially impacting NMTC, if made permanent).It should be noted that under a lowered corporate rate, the value of LIHTC is reduced. As Congress considers tax reform legislation, LIHTC stakeholders will advocate offsetting the effect of a lowered corporate rate and other code changes on LIHTC investment and production.

This summary highlights other key components of the tax reform framework:


  • Top corporate rate of 20 percent and corporate alternative minimum tax (AMT) eliminated
  • Pass-through rate of 25 percent with measures to ensure personal income and wages are not recharacterized as profits
  • Immediate expensing of assets for new investments made after Sept. 27, 2017, for at least five years (not including buildings), while “partially limiting interest deductibility”
  • Committees encouraged to examine a 40 percent corporate dividend payment deduction to reduce double taxation of profits


  • Individual rates of 12 percent, 25 percent and 35 percent, with flexibility to add a fourth bracket for higher incomes
  • Doubled standard deduction
  • Larger child tax credit and $500 credit for non-child dependents
  • Individual AMT and estate tax repealed
  • Mortgage interest and charitable giving deductions explicitly retailed
  • Municipal bond income exemption retained, but unclear on private activity bonds
  • State and local tax deduction and most other itemized deductions repealed
  • “Committees are encouraged to retain tax incentives for higher education (e.g., American opportunity tax credit), retirement (e.g., 401ks and defined benefit plans), and work (e.g., earned income tax credit)”


  • Territorial international tax system with repatriation tax rates for accumulated liquid and illiquid assets
  • Base erosion rules to protect the tax base

Next steps

The release of the framework represents an important development in the drive for tax reform. The next crucial step is for the House and Senate to agree on a fiscal year (FY) 2018 budget resolution with reconciliation instructions for tax reform. Before the House adjourned for the August recess, the House Budget Committee passed a FY 2018 budget resolution, but it has since stalled because it lacks the votes to pass the full House. Chairman Brady announced this week that he will not release any tax reform legislative text until the FY 2018 resolution is passed.

The Senate Budget Committee is expected to consider a FY 2018 budget resolution next week that also includes tax reform reconciliation instructions, but otherwise differs greatly from the House Budget Committee-passed FY 2018 resolution.  It is unclear how these differences will be reconciled, but it is crucial for any tax legislation along the lines of the framework to be considered. It may require a House-Senate conference committee, which will further delay tax reform deliberations.

One potential complication is the failure of the Senate to pass health care reform legislation this week.  Because the FY 2017 health care reconciliation instructions expire on Sept. 30, some members of Congress are pushing to include reconciliation instructions for repealing and replacing the Affordable Care Act (ACA) in the FY 2018 budget resolution.  Doing so may make the passage of the FY 2018 resolution more difficult.

If a final FY 2018 resolution with tax reform reconciliation instructions does indeed pass, the House Ways and Means Committee will then turn to considering to tax reform legislation drafted along the lines of the framework, followed shortly thereafter by the full House.  The Senate Finance Committee could concurrently consider its own version, or wait until the House has passed its version.  The end goal would be to send a final tax reform bill to the president by the end of the calendar year.

Given that there are only 38 House and 47 Senate legislative days left in the year, it will be very challenging to meet that goal.

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