Washington Report

Advocacy Updates from Washington D.C.

Spending Bill Strengthens LIHTC

Late on March 21, House and Senate negotiators released a comprehensive “omnibus appropriations bill,” which is designed to fund the federal government for the balance of the fiscal year ending on September 30, 2018.

The 2,232-page bill is significant because it may be one of the last pieces of legislation to be enacted before this November’s mid-term congressional election.  As such, it has become a “vehicle” to carry various provisions unrelated to funding the government.  Many Members of Congress of both sides of the political aisle, as well as President Trump, hoped to include various priorities in the bill, but most were deemed to be unacceptable to one side or the other and dropped.  

In the tax area, the bill includes the following provisions:

  • Significant improvements to the Low-Income Housing Tax Credit (LIHTC), which were championed by NAR as a key part of a larger coalition that fought for ways to strengthen the LIHTC to help alleviate the dilution of the credit that occurred from last year’s tax reform bill.  That legislation lowered the corporate tax rate from 35 percent to 21 percent, thus greatly weakening the incentive value of the LIHTC.  The improvements, which include a significant increase in the allocation of the Low Income Housing Tax Credit as well a change in the average income test, are viewed as the most important housing legislation in years.  They should result in hundreds of thousands of new affordable housing units built throughout the country.  The changes were supported by both Democrats and Republicans, but were pushed mostly by Democrats on this bill as the “price” for correcting the “grain glitch” (see below) which is seen as a mistake by Republicans because no Democrats supported last year’s tax reform bill.
  • The correction of a technical error in last December’s tax reform bill that fixes the so-called "grain glitch."  The error allowed farmers to claim a 20 percent deduction on their gross sales to farm cooperatives rather than on the intended net income amount, which is the deduction allowed for sales to non-cooperatives that purchase products from farmers.
  • An increase in funding to the Internal Revenue Service of $196 million, for a total amount of $11.4 billion.  $320 million of the funding is specifically targeted to implementing the last year’s new tax law.
  • A series of technical corrections for various tax bills originally enacted from 2004 through 2015.  These are considered non-controversial.

Not included in the draft bill are any other fixes to drafting errors made in the December 2017 tax reform bill, which are considered controversial, simply because of the partisan way that bill was passed.  Also, there was some hope that congressional leaders might include a further extension to various expired tax provisions, such as the cancelled mortgage debt exclusion provision to cover the year 2018.  But these provisions were also not included in the bill.  Nor was a controversial provision to allow states to collect sales tax on goods sold remotely (such as via the Internet) to buyers in other states.