Corporate Tax Hike in Inflation Reduction Act Could Jeopardize Low-Income Housing Program: Analysts

President Joe Biden signs the Inflation Reduction Act as Democrat lawmakers look on at the White House in Washington on Aug. 16, 2022. Drew Angerer/Getty Images

A corporate tax increase embedded in what critics are calling the “deceptively named” Inflation Reduction Act (IRA) could imperil as much as $8 billion a year in low-income housing funds, according to experts.

The low-income housing tax credit (LIHTC) is a dollar-for-dollar tax deduction introduced during the Reagan administration. It has helped create and rehabilitate millions of homes for low-income Americans. However, the IRA and its 15 percent minimum corporate tax rate could mean that corporations and the people who run them could reconsider their support if they get nothing to show for it, said E.J. Antoni, a Ph.D. in economics and a research fellow for regional economics with the Heritage Foundation, a conservative think tank.

The tax code tries to incentivize certain behaviors, Antoni said.

“We want to encourage investment,” he told The Epoch Times. “This creates less incentive to participate in these behaviors.”

People get a dollar-for-dollar tax deduction for helping pay for low-income housing. But factors such as the 15 percent minimum corporate tax rate would discourage those behaviors, Antoni said.

“This is going to cause business to invest less. They won’t get the same benefits,” Antoni said. “The legislators who put this together do not understand that.”

How This Works

The LIHTC was created in 1986 as part of the Tax Reform Act under President Ronald Reagan, and made permanent in 1993. They’re an indirect subsidy used to finance the construction and rehabilitation of low-income housing. It is designed as an incentive for private developers and investors to help provide more low-income housing.

LIHTC funding has built approximately 90 percent of all newly created affordable rental housing in the United States—more than 50,000 low-income rental units annually between 2011 and 2015, and more than 3.4 million total between 1987 and 2020, according to the Government Accounting Office.

With around $8 billion a year passed along to state and local agencies, the Department of Housing and Development’s Office of Policy Development and Research calls LIHTC “the most important resource for creating affordable housing in the United States today for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households.”

The LIHTC, however, is a poorly run program, Antoni said. The dollars that go into the program do not generate corresponding results on the other end. “They are clearly not being well spent,” Antoni said.

The program suffers from many problems, Antoni said, and is “ineffective at fulfilling its mission goals.”

“There is less incentive to keep costs down, and housing produced under the program’s auspices is 20 percent more expensive,” he said.

Last May, President Biden unveiled his Housing Supply Action Plan that he hopes will close America’s housing supply shortfall in five years and “ease the burden of housing costs over time by boosting the supply of quality housing in every community.”

Among the Biden plan’s proposals is income-averaging for LIHTC projects, which should make it easier to finance projects with units for very low-income people, especially in rural areas where incomes tend to be 4 percent lower than in urban areas, according to the U.S. Census. The plan also wants Fannie Mae and Freddie Mac to sell more foreclosed properties to owner/occupants instead of to corporate investors.

Antoni was unimpressed with Biden’s proposal.

“Like the LIHTC program, the Biden administration’s proposals on housing seem aimed more so at creating sound bites than solutions. And measuring government programs on dollars spent than on outcomes improved is always a surefire way to throw good money after bad,” Antoni said.

“I don’t think the question we should be taking on the LIHTC program is whether we should divert more funding or less to it but what would be a better alternative that would help more people while wasting fewer resources?”

Minimum Corporate Tax Rate

It appears Congress did not pull the 15 percent minimum global tax out of thin air. It’s referred to as the global minimum tax and is agreed to in principle by 135 countries that make up more than 90 percent of the world’s gross domestic product.

Global corporations have grown fond of funneling income into low-tax countries. That slashes their income in countries where they’re actually doing business, such as the United States. The 15 percent global minimum tax was introduced to ensure that global companies pay taxes of at least 15 percent where they make their money instead of where they’re based.

However, what happens when those corporations’ tax rates are no longer offset by LIHTC, as may happen with a 15 percent global minimum tax? The Organisation for Economic Co-operation and Development says it may drastically cut their value, according to an August report in the Journal of Tax Credits.

The 15 percent corporate tax rate is part of the Inflation Reduction Act, a massive spending bill approved by the Senate on a 51–50 party-line vote on Aug. 7, and a 220–207 vote in the House on Aug. 12. It was signed into law on Aug. 16.

Matthew Dickerson, director of Heritage’s Hermann Center for the Federal Budget, remains unimpressed, saying the Inflation Reduction Act’s “spending, tax increases, manipulative subsidies, and price controls will make stagflation worse.”

“Hundreds of billions of dollars in taxpayer-funded corporate welfare will subsidize special interests and drive up energy costs for consumers,” Dickerson said in a statement.

The Epoch Times has reached out to the White House for comment.