Earlier this month, Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), the Chairman and Ranking Member of the Senate Finance Committee, wrote to their Senate colleagues asking for comments and feedback on tax reform. In the letter, Senators Baucus and Hatch describe the â€œblank slateâ€ approach they will take in reforming the tax code and the only provisions, credits, or deductions that will be continued after tax reform are those that meet: “(1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.”
Senators have been asked to submit their comments or recommendation letters to the Finance Committee by Friday, July 26th and the submissions will not be made public by the Finance Committee.
It is important that Senators hear from CDFI about the tax provisions that are critical to the community development and economic revitalization efforts in their home states â€“ particularly the impact of the New Markets Tax Credit, the Low Income Housing Tax Credit, and the Historic Tax Credit.
In an effort to encourage Senators to comment on the these tax provisions that help fuel the work of CDFI â€“ the Coalition has drafted language on the New Markets Tax Credit, the Low Income Housing Tax Credit, and the Historic Tax Credit that CDFIs can encourage their Senator(s) to include or reference in comments they submit to the Finance Committee.
Suggested Language for Senators Drafting Tax Reform Comment Letters:
NEW MARKETS TAX CREDIT
The New Markets Tax Credit (NMTC) is an established program that has made significant contributions to local economies in low income urban and rural communities across the country and any tax reform legislation developed by the Senate Finance Committee should include the provisions included in the New Markets Tax Credit Extension Act of 2013 (S. 1133):
1. a permanent, or indefinite authorization of the NMTC;
2. an increase in NMTC credit authority indexed to inflation; and
3. an exemption for NMTC investments from the Alternative Minimum Tax.
Between 2003 and 2011, NMTC investments directly created some 350,000 jobs at a cost to the federal government of $19,500 per job and leveraged $55 billion in capital investment to credit starved businesses in communities with high poverty and unemployment rates.
Of the $55 billion in capital investment made in NMTC qualified businesses between 2003 and 2011, $27 billion was direct NMTC investments and $28 billion from other sources. During the same period, the program cost the federal government $7 billion, translating into a return on investment to the federal government is 8 to 1.
The impact of the NMTC goes beyond direct job creation. NMTC investments promote investment and economic growth in underserved communities. A 2012 report issued by the NMTC Coalition found that the income taxes paid by NMTC financed businesses and generated by the direct and indirect jobs created offset the cost of NMTC to the federal government.
The principal policy objective of NMTC is to increase the flow of private sector capital to communities long overlooked by market forces. The program was authorized in 2000 as part of the Community Renewal Tax Relief Act (P.L. 106-554) and while todayâ€™s economy differs significantly from the 2000 economy, the challenge of attracting investment capital to underserved areas persists. This lack of capital stifles entrepreneurs and impedes economic growth leading to urban decay and stagnation in small towns and farming communities, despite opportunities for investment. There is substantial evidence that the NMTC has effectively encouraged private sector investment in underserved low income areas. A 2007 report published by the U.S.
Government Accountability Office (GAO) indicated that 88% of investors surveyed would not have made the investment in the low income community without the Credit. Exempting NMTC investments from the Alternative Minimum Tax will further expand the NMTC investor market bringing in more corporations and smaller regional banks.
The importance of the NMTC is underscored by trends in federal community development spending. According to Congressional Budget Office (CBO), federal community development spending measured as a share of GDP has fallen by 75% since 1980. In many rural and urban communities, NMTC is one of the few financing sources available for community revitalization.
Data from the CDFI Fund, along with the NMTC Coalitionâ€™s annual surveys of NMTC activity, shows that 100% of NMTC investments go to economically distressed communities and more than 70% go to communities in extreme distress. The program is reaching communities that far exceed the statutory requirements for poverty and economic distress.
Furthermore, the NMTC accomplishes this at a relatively low cost to the federal government. While the nominal rate on NMTC investments is 39%, there is, in effect, an exit tax for investors at the end of the 7-year compliance period. This tax reduces the cost of NMTC to federal government to 26%.