Both chambers of Congress began consideration of their specific versions of the President’s tax proposal. NAHMA is continuing to advocate for protection of the Low Income Housing Tax Credit’s (LIHTC) overall effectiveness in the context of the repeal of dividend taxes. At this stage in the legislative process, it appears the President’s initial plan to completely repeal the taxes on dividends has been rejected.
The House version of the Jobs and Growth Reconciliation Tax Act (HR 2) does not repeal dividend taxes. Rather, it significantly lowers the top rate on dividend taxes from 38.6 percent to 15 percent. The tax rate on dividends for those in the lowest tax brackets would be lowered to 5 percent. Capital gains taxes are also lowered to the 5 and 15 percent rates. The House is expected to approve HR 2 Friday afternoon.
On the Senate side, another dividend tax compromise has emerged. The bill approved in the Senate Finance Committee exempts the first $500 in dividend income from taxes. Also, it allows shareholders to exclude an additional 10 percent of the dividend income during the first five years after enactment, and 20 percent of dividend income for the following five years. In his opening statement to the Committee, Chairman Grassley asserted his proposal would cover 86 percent of dividend-receiving taxpayers and would set the top dividend tax rate at 28 percent. Action on the Senate bill is expected to begin next week.
Preliminary reaction from industry colleagues has been that no unintended adverse consequences for the LIHTC are expected under the Thomas and Grassley compromise dividend proposals. The reason these proposals are not expected to harm the LIHTC is because they apply to the way shareholders pay their taxes; they do not affect the way corporations compute taxes paid, as the President’s proposal called for. Under the President’s proposal, concern emerged that demand for the LIHTC would soften (and the price of the LIHTC would drop) because of the way corporations would calculate taxes paid. Corporations would have less need to shelter their taxes, and thus, may not have as much desire or need to buy the LIHTC.
Hearings
The House Financial Services Subcommittee on Housing and Community Opportunity approved several bills for consideration by the full Committee. These included:
The American Dream Downpayment Act (HR 1276) sponsored by Rep. Katherine Harris (R-FL). HR 1276 authorizes the President’s proposed $200 million set aside in the HOME program to provide downpayment assistance for low-income families; and
The HOPE VI Program Reauthorization and Small Community Mainstreet Rejuvenation and Housing Act (HR 1614) sponsored by Rep. James Leach (R-IA). As indicated by the title, HR 1614 reauthorizes the HOPE VI program, which was created to demolish severely distressed public housing and then provide replacement housing. HR 1614 opens the funding to smaller communities, and allows funds to be used for renovation of “declining historic Mainstreet and town square areas.” Movement of this bill is particularly significant because the Administration had proposed ending the HOPE VI program altogether in the 2004 budget.
