A Tax Reform Sucker Punch
When I start working with a community that is struggling to implement a policy or plan I often will ask, “What is the problem you are trying to solve?” I find it’s frequently the case of pushing a preconceived solution without first correctly diagnosing the problem. This seems to be the case with the federal GOP tax plans proposed in the House and Senate Chambers. I remain unsure of what problem Congressional Republicans are trying to solve by lowering the corporate tax rate and estate tax. American corporations are seeing strong profits, unemployment rates are at record lows, CEOs are witnessing historically high salaries and bonuses, the US economy is strong, and the stock market is bullish.
At the same time, however, middle class families are struggling to pay for health care, education, and rising energy costs. While incomes for most have remained flat over the last decade, average housing prices and rents are skyrocketing. Today, more than 1 in 4 renter households in the US spend over half of their annual income just on rent. In short, many Americans of modest and even decent means are living paycheck to paycheck. Those pesky deductions that Congressional Republicans are threatening to take away will most impact the middle class who overwhelmingly benefit from them.*
Don’t get me wrong, I don’t like to pay taxes any more than Paul Ryan does, and as a small business owner it pains me to write my quarterly checks to the IRS sending back 30% of my hard-earned money. Yet, I also recognize the need and value of government investments to maintain my business, my family’s quality of life and the safety of our country. And I’ve seen Congress make some impressive tax policy over the years including the creation of the Low-Income Housing Tax Credit (LIHTC) in 1986. LIHTC is a major financial tool for providing affordable housing, and engaging the private sector in community development. Since its creation, LIHTC has financed 3 million affordable apartments built by private developers in every state in the nation. More recently, a Democratic Congress passed major tax policy providing substantial benefits to the middle class and one of the nation’s largest tax cuts in 2009 with the Economic Recovery Act. In both cases, there was a problem that needed to be fixed and tax policy became a solution. What is the problem today we are so desperate to solve that draconian measures such as eliminating deductions for medical costs, mortgages, state and local taxes, and other costs borne by millions of Americans are being considered? I’ve yet to hear a believable answer.
Affordable housing projects like this one located near transit in Minneapolis have benefitted from LIHTC and private developers working with local governments to create more housing options. (photo: mzimmerman)
The impacts of these proposed tax reforms to middle class individuals is just the tip of the iceberg, however. When you add the impacts resulting to state and local governments that families - regardless of income - rely upon, the costs are even greater. The House GOP proposal (H.R. 1) would eliminate New Market Tax Credits, Historic Tax Credits and tax exemption on Private Activity Bonds. The Senate version retains both, but repeals the ability of local governments to advance municipal bonds to accelerate and reduce costs to build infrastructure projects.
Both House and Senate versions alter the way that state and local taxes (SALT) are treated, with the Senate bill proposing its elimination. Important distinctions exist between the House and Senate tax reform proposals, but the bottom line is that American communities and average tax payers will bear the cost of tax cuts benefitting a small fraction of wealthy households and large corporations. Americans Against Double Taxation estimates that “suburban homeowners are paying much of the $1.1 trillion tab resulting from the loss of the SALT deduction.”
These proposed changes essentially undercut the ability of state and local governments to build critical infrastructure projects – usually done in partnership with the private sector – such as hospitals, schools, roads, bridges, transit lines and affordable housing. This comes from the same Congress who has repeatedly failed to provide adequate direct infrastructure spending for states and localities. Their message to local elected officials has been “figure out how to pay for infrastructure without the federal government.” Many have, and just last week 90% of local transportation funding measures were approved. For all those communities who have stepped up over the years and taken on improving America’s failing infrastructure grade, Congress now says too bad suckers.
Congressional Republicans won’t provide you the funding you need. They propose taking away the tools you use to work with the private sector. And, they won’t let your residents deduct the local taxes they pay for Congressional failure to act. Instead, Congressional Republicans want to tax people twice. Nice.
Infrastructure is one issue that commonly brings together local leaders and advocates across political parties and ideologies, whether environmentalist, labor, business leader, farmer or equity advocate. Tax reform was an area that many who care about infrastructure held out hope. Would Congress fix the Highway and Transit Trust Funds by indexing the gas tax for inflation? Would new tax incentives be created to foster greater private sector investment in a variety of infrastructure asset classes? Would loopholes be closed to bring off-shore funds back to invest in America? Could we create a new tax credit to address housing displacement and stabilize neighborhoods? The answer to each is a resounding no. Rather than recognize and respond both to the need and the bipartisan demand for infrastructure investment that benefits the economy, the environment and the average American, this Congress provides a sucker punch. (The Administration’s FY18 budget proposal did the same thing, so I’m starting to think this attack on local public-private sector solutions and community-driven investments is no GOP accident.)
Analysis by Lily Batchelder at the Tax Policy Center suggests that almost 1/2 of households earning less than $100K would pay more or be left out while the average tax cut for millionaires is $48,680.
Working families are likely to feel the brunt of these proposed GOP tax changes. The housing affordability crisis will be exacerbated by a loss of production resulting from the changes proposed in the GOP tax bills. Just the threat to eliminating the LIHTC has slowed production, exactly as more housing is needed across a range of price points. We already are seeing an increase in the number of toll roads across the country. Uber and Lyft are gaining popularity, and while they provide convenient mobility for those who can afford it, they are also symptomatic of our failure to publicly invest in other modes of transportation beyond the car. Schools, water systems and our energy grid are aging. Broadband is still lacking or insufficient in much of rural America and low-income urban neighborhoods.
Our nation is blessed with amazing entrepreneurs, innovators and inventors, engineers, planners and architects, and creative developers. We have bold and passionate community partners stepping up to help shape and redefine infrastructure projects. In every community I visit through my work, it’s impressive to see the leadership provided by local elected officials, business leaders and community advocates. Those of us in the middle class know that these are tenuous economic times. We feel it each month when we pay our bills. But we also believe in the future and the need to invest in it, not just as individuals but as a community and nation. This is why, for the last decade, we’ve seen a steady stream of support by local taxpayers for funding measures to improve transportation, affordable housing, parks, schools, trails and open space in our neighborhoods. These investments matter to our lives, to our ability to reach jobs, to our kid’s education and the value of our homes, and to our quality of life.
Against the backdrop of proven need and leadership coming from local communities and households, this Congress does little to help either. And in ways truly confounding, the GOP tax proposals will do damage to both. So why again are they pushing these reforms? To help big corporations? I guess that given the death grip money has on politics today buying legislators is not fun if you can’t get those legislators to grow your profits on the backs of working Americans, and on the broken bridges of America’s towns.
* Note: Tax deductions are particularly important for middle class homeowners. Tax policy has not been as kind to those who rent, and lower-income workers. Under the GOP proposals this remains true. Some advocates argue for altering the mortgage deduction as a way to increase funding for affordable housing.
Breathtaking projects like Denver's Union Station restoration which revitalized a neighborhood, strengthened transit connections to the airport, and provides housing, commercial, retail, urban parks and hotel space through an innovative public-private partnership are at risk of being a thing of the past if proposed GOP tax reforms to limit PABs, municipal bonding tools and SALT take effect. (photo: mzimmerman)