New Tax Plan: Effects on Affordable Housing and Small Businesses

The number of affordable housing units could be reduced by nearly 1 million under the proposed GOP tax bill, according to Novogradac & Company, a San Francisco-based national accounting firm. For Americans who utilize and depend on subsidized housing, being subjected to rising rents that currently exhibit a 2.7 percent year-over-year increase is all but impossible.

The House version of the bill would make previously tax-exempt interest on private activity bonds taxable; these bonds are utilized to fund the majority of affordable housing developments. The Senate version maintains private activity bonds in their current state but lessens the worth of low-income tax credits.

In a joint release this week, Rep. Randy Hultgren (R-IL) and Dutch Ruppersberger (D-MD) stated, “We will be reaching out to House leadership urging them to keep the tax-exempt status of private activity bonds, which are used to fund important public goods such as health-care facilities, affordable housing, and education.”

The bill would impact not only Americans currently living in affordable housing units, it also diminishes opportunities for those aspiring to progress into subsidized housing. This becomes increasingly precarious for communities with high homeless populations like California, which is home to 118,000 of the 550,000 homeless people in the U.S.

Texas and Florida, which are in dire need of reconstruction following Hurricanes Harvey and Irma, the elimination of private activity bonds poses that much more of a threat.

For small businesses, 75 percent of which are categorized as pass-through companies for which profits are taxed at individual income rates, the bill could provide substantial financial relief. Under the bill, there would be a new 25 percent top tax rate on pass-through business income. Currently, the maximum tax rate for pass-through businesses is 39.6 percent.

However, much concern has been raised by small businesses and business advocacy groups regarding the revenue requirements of the proposed tax rates, as only 13 percent of businesses paid more than the 25 percent tax rate this year—and only businesses paying over the 25 percent rate will benefit from the tax cut—accounting for 77 percent of all pass-through earnings, according to the Tax Policy Center.

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