Senate Republicans unveiled their proposal for tax reform on Thursday, and while it maintains many of the primary provisions in the House of Representatives bill released last week, it diverges on measures related to property and housing.
Most notably, the Senate bill eliminates state and local tax deductions that are popular in coastal cities with high property taxes and in states with high income taxes. Members of the House who represent districts in states like New Jersey and New York with high property taxes are already rallying to leave the deductions untouched. The House bill maintained property tax deductions but capped them at $10,000.
Affordable housing advocates assailed the House bill for eliminating tax-exempt private-activity bonds that fund a lot of public-private infrastructure projects, including more than half of the affordable housing units produced under the Low Income Housing Tax Credit Program (LIHTC).
In a win for affordable housing advocates, the Senate bill retains these private-activity bonds, although it maintains the House bill’s exclusion for using the bonds to build professional sports stadiums.
The Senate bill also retains the Historic Tax Credit (HTC) program that provides incentives for rehabilitating old and abandoned buildings, which the House bill eliminated. However, the Senate bill does reduce the credit from 20 to 10 percent of eligible expenses.
While the bill leaves the LIHTC and HTC programs intact, experts contend that a drop in the corporate tax rate would reduce the value of these credits, and thus the amount of money raised by the programs.
Both the House and Senate bills cut the corporate tax rate from 35 to 20 percent, although the Senate bill delays this change until 2019. Novogradac & Company, an accounting firm that specializes in the real estate sector, previously estimated a corporate tax cut could result in as much as $2.2 billion less in equity raised by LIHTCs and as many as 16,000 fewer new or preserved low-income housing units each year.
The National Association of Home Builders and the National Association of Realtors cried foul when the House bill capped the mortgage-interest tax deduction (MID) at $500,000, down from the current $1 million cap. The Senate appears to have bowed to pressure from these two powerful lobbies, as the Senate bill leaves the cap at $1 million. This deduction affects mostly coastal upper-middle class and wealthy families.
But the number of taxpayers who claim the MID would likely drop drastically because of a proposal to double the standard deduction, which is present in both the House and Senate bills. The Tax Policy Center estimated that a rise in the standard deduction would cause as many as 33 million fewer taxpayers to itemize their taxes, resulting in a drop in use of itemized deductions like the MID.