Senate Finance Committee Considers LIHTC, NMTC and HTC Options: Expand, Reform, Retain or Repeal

Published by Michael Novogradac on Wednesday, May 15, 2013 - 12:00am

The Senate Finance Committee today released a tax reform option paper about economic and community development provisions.

This option paper is the sixth in a series of papers compiling tax reform options that Senate Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. The compilation is a joint product of the majority and minority staffs of the Finance Committee with input from committee members’ staffs. The options described in the paper represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts and members of Congress.

It is important to note that the options listed are not necessarily endorsed by either the Chairman or Ranking Member.

In short, the options presented can be summarized as expand, reform, retain or repeal.

Low-Income Housing Tax Credit (LIHTC)

The paper lists four options related to the low-income housing tax credit (LIHTC):

  • Repeal the LIHTC
  • Replace the LIHTC with an equivalent reduction in tax on rental income
  • Reform or expand the LIHTC
    • allow states to use amounts allocated for private activity bonds for LIHTCs instead, adjust and freeze the discount rate for the LIHTC,
    • prohibit awarding of credits to nonprofits controlled by for-profit entities,
    • limit the number of LIHTC units per project, or
    • eliminate the provisions in current law allowing for enhanced credits for projects in certain geographic areas
  • Create a non-refundable tax credit for low-income renters
    • Credit could go to property owners that reduced rents for low-income renters generally to no more than 30 percent of their income. Alternatively, could provide a refundable tax credit to low-income renters
    • Could cap amount of federal credits for allocation by states at, for example, $5 billion
    • Credit could supplement or replace the LIHTC

New Markets Tax Credit (NMTC)

The paper lists two options related to the new markets tax credit (NMTC):

  • Repeal the New Markets Tax Credit
  • Extend and modify the New Markets Tax Credit
    • permanently extend the New Markets Tax Credit
    • index the credit for inflation and allow it to offset AMT liability
    • prohibit any project benefitting from the New Markets Tax Credit from also receiving any other federal tax benefit, federal grant, or federal loan
    • prohibit New Markets Tax Credits from being claimed by entities that received TARP funding
    • prohibit New Markets Tax Credits from being used to support certain projects, such as fast food restaurants

Historic Preservation Tax Credit (HTC)

The paper lists two options related to the historic preservation tax credit (HTC):

  • Repeal the HTC
  • Reform the HTC
  • For example, increasing the credit to 30% for certain smaller projects and adding