A Short-Sighted Tax Plan That Undercuts America

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Any tax plan that defers yet again the urgently needed infrastructure, resiliency building and job-producing revitalization our country needs is a defeat for millions of Americans. On that score, the congressional Republican leaders’ so-called “tax reform,” so far, is a failure.

The House and Senate tax plans are a blow to our health, our well-being, our ability to prosper as a nation, and worst of all they make our children pay for any grab-it-now benefit to the wealthiest 1% and corporate polluters. And, the next generation won’t just pay in money, but in lost opportunity and diminished ability to thrive and prosper.

How do we know?

The cuts proposed would severely impair public-private partnerships in building roads, bridges, transportation lines, affordable housing, hospitals, airports and schools—projects sorely needed for the public good. This reduces the leverage the public sector has for taking those projects in new directions to include more green infrastructure and clean energy, thus contributing to emissions and doing nothing to protect against climate effects such as harsh heat, coastal floods, increased asthma and early death. And, of course, the same cuts would also make it harder to finance solar, wind and other clean energy and energy efficiency projects, not to mention the House bill that prematurely cuts credits for wind, electric vehicles and commercial solar. Fewer of these projects means less public benefit from their clean energy.

Not surprisingly, the most vulnerable Americans—who suffer disproportionately from pollution and health-related climate effects—would be most at risk.

Housing

For example, under threat are Low-Income Housing Tax Credits (Housing Credits)—the nation’s most successful tool for producing and preserving affordable rental housing, which in conjunction with private activity bonds have financed more than 3 million apartments since 1986. This has provided homes for some 7 million low-income families, seniors, veterans and people with disabilities.

So, what exactly is at stake? The tax bill approved by the House, “the Tax Cuts and Jobs Act” (HR1), protects the Housing Credit, BUT eliminates private activity bonds. While private activity bonds should be subject to conditions that secure public benefits, the bill instead throws the baby out with the bathwater because these bonds are currently critical for half of all Housing Credit transactions. 

Private activity bonds trigger use of what are called “4 percent Housing Credits.” In other words, without the bonds, the badly needed affordable housing these credits finance would not be built.  And in fact, the value of 4 percent Housing Credits allocated nationally has more than doubled since 2010. As a result, the 4 percent Credits are responsible for about 50 percent of all Housing Credit production.

The Senate tax bill protects Housing Credits and private activity bonds. And for an explainer of the housing and community development policy differences between the bills, check out this great piece. With this much in play, small wonder that local officials are increasingly concerned about this wrongheaded bill.

However—and sorry, tax financing has a lot of moving parts but it’s really important—both the House and Senate bills would impede Housing Credit production by not explicitly shielding them from the negative impact of the 20 percent corporate tax rate on the Housing Credit.  Why is this important? Because a cut to the corporate rate means less incentive for companies to invest in activities that would yield them a tax savings, like Housing Credits. That means less funding for these projects and more into whatever is most profitable for corporations. Thankfully, there is a fix available in the Senate that would offset the effect of a lower corporate rate on affordable housing production. Senators just need to add it to the bill.

The ACTION Campaign has created state and district fact sheets to help illustrate the impact of the Housing Credit in every congressional district, including the number of affordable apartments created or preserved, the jobs supported and other benefits to local economies. And to help you understand how important private activity bonds and 4% Credits are for multifamily affordable rental housing, the National Housing Conference (NHC) created state-specific facts sheets now available on its website.

A slowdown in housing production is already happening. And, it’s not just low-income renters who will be affected. The national housing affordability crisis will be exacerbated, with more people fighting for housing near job centers and more being driven farther from opportunity by high prices, creating sprawl, straining transportation arteries and city resources and increasing transportation pollution.

The money for transportation infrastructure, for example, will have to come from somewhere and that could mean more tolls and local taxes to pay for the loss of federal investment.

Infrastructure

Infrastructure was touted by President Trump early on as a major area of focus, but there is little to show for that claim except a smoke-and-mirrors plan that would funnel very few federal resources to especially hurting communities. With possible incentives under a new tax plan, our hopes were raised again, but there are no proposals to take simple and logical steps such as putting the gas tax in line with inflation to fund clean transportation and other projects, incentivizing commitments from corporations that benefit from tax cuts to keep fair-wage jobs in the United States or other commonsense approaches.

Dismantling state and local tax deductions, as proposed, would burden the taxpayer as the added cost of financing local infrastructure and housing projects is passed on to middle class families.

As the Center on Budget and Policy Priorities puts it, when the tax cuts cause the deficit to rise, Congress will likely call for cutting federal programs after the fact, reducing important infrastructure investments in highways, transit, drinking water and wastewater treatment systems, and other long overdue needs. Already, nearly one-fourth of all Americans are getting drinking water from untested or contaminated water systems.  

Devaluing infrastructure built for the public good devalues America. As we recently stated, the quality of infrastructure determines whether societies thrive or fail. And it’s a key indicator of our progress and stature as a nation.

As we’ve laid out in a set of principles, infrastructure built with an emphasis on people and the environment can not only improve transportation, create better access to power and energy, increase economic mobility, and bring us into the 21st century but also make our communities more resilient, support fair-wage jobs, improve health, and help address income disparity, systemic racial segregation, and poverty.

The American Society of Civil Engineers has given U.S. infrastructure an overall grade of D+ and called for $2 trillion in investments. Proposed cuts in both House and Senate plans would mean a $1.5 trillion addition to the national debt. 

If the government is going to rack up that much debt, some of the greatest needs are to fund clean infrastructure investments in our communities, invest in clean energy solutions and make sure agencies like EPA have what they need to properly enforce safeguards. You would be hard pressed to find an average American who would choose to spend those funds by giving them away to highly profitable companies such as major oil and gas companies.

Yet this Congress has made that poor choice and the rest of us are left wondering what will that mean for our children and their ability to breathe clean air and drink pure water, live in places of opportunity and thrive? 

About the Authors

Deron Lovaas

Director, EEFA, Resilient Communities, Healthy People & Thriving Communities Program

Stephanie Gidigbi

Director of Policy & Partnerships, Healthy People & Thriving Communities Program

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