Republicans Outline Tax Reform Plan, Keep LIHTCs

The Trump administration and GOP congressional leaders recently proposed the “Unified Tax Reform Framework,” their plan for the most sweeping overhaul of the federal tax code in more than three decades. The proposal calls for reducing the corporate tax rate to 20 percent from 35 percent, a shift that’s intended to make American companies more competitive with their counterparts around the world. It should be noted that under a lowered corporate rate, the value of LIHTC is reduced.

In addition, under the framework, a new tax rate would be created for so-called pass-through businesses. These businesses, partnerships, and sole proprietorships whose profits “pass through” to their owners, would be taxed at a rate of 25 percent, not the individual rate of their owners, like under the current law.

Another big change for companies would be a limitation of the deductibility for corporate interest expenses in exchange for the opportunity to immediately expense business investments. The ability to write these expenses off immediately would last only five years, and the limitations for deducting interest have yet to be determined. The plan also calls on the tax committees to eliminate most of the tax credits that businesses currently use. Those that remain are the tax credits for research and development and the LIHTC.

The document states, “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.”

Administration officials did not provide a cost estimate for the plan. Members of the Senate Budget Committee have agreed on a budget resolution that would allow for a $1.5 trillion tax cut over 10 years. The Republicans pitching the plan say economic growth will compensate for lost revenue. During the campaign, Mr. Trump said overhauling the tax code would raise economic growth to 4 percent.