The Washington Report

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2 The Washington Report PANELISTS Michael Novogradac Novogradac & Company David Gasson Boston

3 Agenda What s in Store for the Coming Months? Historically Major Tax Legislation: First Year in Office Why is Tax Reform So Hard? Update on Tax Reform Advocacy

4 Sept. 8 Pres. Trump signed debt ceiling deal Sept. 29 Debt ceiling was estimated to be hit Sept. 30 End of FY17 Deadline to fund gov t in FY18 National flood insurance program (NFIP) expired Today SEPT OCT NOV DEC JAN FEB MAR APR MAY *Mar. 16 Last debt limit suspension expired, Treasury used extraordinary measures to avoid hitting debt ceiling JUNE

5 Sept. 8 Pres. Trump signed debt ceiling deal Sept. 29 Debt ceiling was estimated to be hit Sept. 30 End of FY17 Deadline to fund gov t in FY18 National flood insurance program (NFIP) expired Today Dec. 8 CR expires Temporary extension of NFIP expires New debt ceiling suspension expiration date Treasury to use extraordinary measures Treasury will hit new X date for debt ceiling SEPT OCT NOV DEC JAN FEB MAR APR MAY *Mar. 16 Last debt limit suspension expired, Treasury used extraordinary measures to avoid hitting debt ceiling JUNE

6 Sept. 8 Pres. Trump signed debt ceiling deal Sept. 27 Big 6 released unified tax reform framework Sept. 30 FY17 budget resolution expired Today Dec. 8 CR expires Temporary extension of NFIP expires New debt ceiling suspension expiration date Treasury to use extraordinary measures Treasury will hit new X date for debt ceiling SEPT OCT NOV DEC JAN FEB MAR APR MAY JUNE

7 Sept. 8 Pres. Trump signed debt ceiling deal Sept. 27 Big 6 released unified tax reform framework Sept. 30 FY17 budget resolution expired Today Dec. 8 CR expires Temporary extension of NFIP expires New debt ceiling suspension expiration date Treasury to use extraordinary measures Treasury will hit new X date for debt ceiling SEPT OCT NOV DEC JAN FEB MAR APR MAY JUNE

8 Oct. 4-5 Senate Budget Committee marked up its FY18 budget resolution House voted on its FY18 resolution Full Senate to consider FY18 Budget resolution An Optimistic Schedule House and Senate resolve differences Senate Finance Committee considers tax reform Ways and Means markup of Tax Reform Full house takes up tax reform Full Senate considers tax reform Dec. 14/15 Currently scheduled to adjourn for the holidays, may postpone OCT NOV DEC SENATE IN SESSION: 44 days HOUSE IN SESSION: 36 days

9 Recent Presidents Who Had Major Tax Bills the Year of their Inauguration? CARTER REAGAN BUSH CLINTON BUSH OBAMA TRUMP

10 Why is Tax Reform So Hard? 51 vs. 60 BUDGET RECONCILIATION HOUSE FREEDOM CAUCUS

11 Tax Reform in Congress Big 6 Statement Released 9/27 President Trump Speech on Tax Reform

12 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.

13 Big 6 Tax Reform Framework Business 20% Top corporate rate Corporate AMT eliminated 25% Pass-through rate FULL Expensing eligible effective 9/27/2017, not applied to buildings

14 Big 6 Tax Reform Framework Business LIHTC and R&D explicitly retained Committees encouraged to examine corporate dividend payment deduction to reduce double taxation of profits

15 Big 6 Tax Reform Framework Individual Individual rates of 12%, 25%, and 35%, 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

16 Big 6 Tax Reform Framework Individual Mortgage interest and charitable giving incentives explicitly retained Municipal bond income exemption retained, but unclear on private activity bonds According to Mark Calabria, Chief Economist for VP Pence, private activity bond tax exemption is retained.

17 Big 6 Tax Reform Framework Individual Mortgage interest and charitable giving incentives explicitly retained Municipal bond income exemption retained, but unclear on private activity bonds State & local tax deduction and most other itemized deductions repealed Committees are encouraged to retain tax incentives for higher education, retirement, and work

18 Big 6 Tax Reform Framework International Territorial int l tax system with repatriation tax rates for accumulated liquid and illiquid assets Base erosion rules to protect the tax base

19 Major LIHTC Policy Initiatives in Face of Tax Reform Preserve Credit and Bonds Preserve Value Expand Resources

20 LIHTC Pricing Sensitivity Analysis

21 LIHTC Pricing Sensitivity Analysis

22 LIHTC Pricing Sensitivity Analysis

23 LIHTC Pricing Sensitivity Analysis

24 And, a Two Step Recommendation

25 A Two Step Recommendation STEP 1 Increase allocable LIHTCs

26 A Two Step Recommendation STEP 2 Modernize Credit Percentage Formula

27 A Two Step Recommendation STEP 2 Modernize Credit Percentage Formula

28 More LIHTCs via Affordable Housing Credit Improvement Act 50 percent increase CANTWELL TIBERI HATCH NEAL Incomeaveraging Minimum 4 percent rate

29 More LIHTCs via Affordable Housing Credit Improvement Act 50 percent increase CANTWELL TIBERI HATCH NEAL Incomeaveraging Minimum 4 percent rate

30 More LIHTCs via Affordable Housing Credit Improvement Act 50 percent increase CANTWELL TIBERI HATCH NEAL Incomeaveraging Minimum 4 percent rate

31 More LIHTCs via Affordable Housing Credit Improvement Act 50 percent increase CANTWELL TIBERI HATCH NEAL Incomeaveraging Minimum 4 percent rate

32 More LIHTCs via Affordable Housing Credit Improvement Act Additional Resources Give states discretion to provide 30% basis boost for bond-financed projects Repeal QCT population cap Relocation costs included in eligible basis No basis reduction for certain energy tax incentives Indian areas generally treated as DDAs

33 More LIHTCs via Affordable Housing Credit Improvement Act Financial Feasibility 50% basis boost for ELI units Modify student occupancy rules Codify increased tenant income guidance Modify 10-year rule Limits apply to acquisition basis Adopt uniform income eligibility for rural projects

34 More LIHTCs via Affordable Housing Credit Improvement Act Other Modify the rent-setting rule Clarify the community revitalization plan Prohibit local approval or contribution requirements Change the official name of the LIHTC to Affordable Housing Tax Credit

35 Advocacy

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41 Questions? PANELISTS Michael Novogradac Novogradac & Company David Gasson Boston