Corporate tax hike in Inflation Cut Act could jeopardize low-income housing program: analysts

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A corporate tax hike embedded in what critics call the “misleadingly named” Inflation Reduction Act (IRA) could put up to $8 billion at risk, experts say. dollars a year in housing funds for low-income people.

The Low-Income Housing Tax Credit (LIHTC) is a dollar-for-dollar tax deduction introduced under the Reagan administration. He has helped create and rehabilitate millions of homes for low-income Americans. However, the IRA and its minimum corporate tax rate of 15% could mean companies and the people who run them could reconsider their support if they don’t get anything to prove, said EJ Antoni. ‘a Ph.D. in economics and a regional economics researcher at the Heritage Foundation, a conservative think tank.

The tax code tries to incentivize certain behaviors, Antoni said.

“We want to encourage investment,” he told The Epoch Times. “It creates less incentive to participate in these behaviors.”

People get a dollar-for-dollar tax deduction for helping pay for low-income housing. But factors such as the 15% minimum corporate tax rate would discourage such behavior, Antoni said.

“This will encourage companies to invest less. They won’t get the same benefits,” Antoni said. “The lawmakers who put this together don’t understand this.”

How does it work

The LIHTC was created in 1986 as part of the Tax Reform Act under President Ronald Reagan and became permanent in 1993. It is an indirect grant used to finance the construction and rehabilitation of public housing. It is designed as an incentive for developers and private investors to help provide more low-income housing.

LIHTC funding helped build approximately 90% of all newly created affordable rental housing in the United States, or more than 50,000 low-income rental units per year between 2011 and 2015, and more than 3.4 million in total between 1987 and 2020, according at the Government Accounting Office.

With approximately $8 billion per year transferred to state and local agencies, the Department of Housing and Development’s Office of Policy Development and Research calls LIHTC “the premier affordable housing resource in the United States today for the acquisition, rehabilitation, or new construction of rental housing for low-income households.”

The LIHTC, however, is a poorly run program, Antoni said. Dollars invested in the program do not generate corresponding results at the other end. “They are clearly not well spent,” Antoni said.

The program suffers from many problems, Antoni said, and is “ineffective in achieving its mission goals.”

“There are fewer incentives to cut costs, and housing produced under the auspices of the program is 20% more expensive,” he said.

Last May, President Biden unveiled his housing supply action plan which he hopes will close the housing supply gap in the United States in five years and “ease the burden of housing costs over time by increasing the supply of quality housing in each community”.

Among the Biden plan’s proposals is income averaging for LIHTC projects, which should make it easier to fund projects with housing for those on very low incomes, especially in rural areas where incomes tend to be lower by 4% to those in urban areas, according to the US Census. The plan also wants Fannie Mae and Freddie Mac to sell more foreclosed properties to owner/occupiers rather than corporate investors.

Antoni was unimpressed with Biden’s proposal.

“Like the LIHTC program, the Biden administration’s housing proposals appear to be more about creating soundbites than solutions. And measuring government programs on dollars spent rather than improved outcomes is always a surefire way to throw good money after bad,” Antoni said.

“I don’t think the question we should be asking about the LIHTC program is whether we should put more or less funding into it, but what would be a better alternative that helps more people while wasting fewer resources?”

Minimum corporate tax rate

It looks like Congress didn’t pull the minimum 15% global tax out of thin air. It’s called the global minimum tax and it’s accepted in principle by 135 countries that account for more than 90% of the world’s gross domestic product, said Michael Novogradac, a leading expert on social housing and tax credits.

Global corporations have become fond of channeling income to low-tax countries. This reduces their income in the countries where they do business, such as the United States. The 15% global minimum tax was introduced to ensure that global companies pay taxes of at least 15% where they make their money rather than where they are based.

However, what happens when the tax rates of these corporations are no longer offset by the LIHTC, as can happen with an overall minimum tax of 15%? The Organization for Economic Co-operation and Development says this could significantly reduce their value, Novogradac said.

The 15% corporate tax rate is part of the Cut Inflation Act, a massive spending bill approved by the Senate in a 51-50 vote to the party line on 7 August and a vote of 220 to 207 in the House on August 12. It was enacted on August 16.

Matthew Dickerson, director of Heritage’s Hermann Center for the Federal Budget, remains unimpressed, saying “the spending, tax increases, manipulative subsidies and price controls of the Inflation Reduction Act will worsen stagflation”.

“Hundreds of billions of dollars in taxpayer-funded corporate welfare will subsidize special interests and drive up energy costs for consumers,” Dickerson said. said in a report.

The Epoch Times has contacted the White House for comment.

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Randy Wyrick has four decades as a national and local journalist, working all over the world.

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