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LISC and Urban Institute Host In-Depth Discussion of Tax Bill

On April 18, Local Initiatives Support Corporation (LISC) and the Urban Institute hosted a policy discussion to examine the likely impacts of the 2018 Tax Cuts and Jobs Act (TCJA) on the resources policymakers and practitioners depend on to help close the opportunity gap for low- to moderate-income people and communities. 

Urban Institute President Sarah Rosen Wartell introduced the session, noting that there have been many discussions about how the TCJA will affect other things, but we want to make sure we are keeping focus on the opportunity gap. She recognized the contributions of scholars from Urban Institute’s Tax Policy Center, whose work influenced the evolution of the bill as it was formulated and debated.

Conversation with Congresswoman Terri Sewell

LISC President and CEO Maurice Jones talks with Congresswoman Terri Sewell of Alabama.

To kick off the symposium, Maurice Jones, President and CEO of LISC, spoke with Congresswoman Terri Sewell of Alabama’s 7th district. Jones asked Congresswoman Sewell how she views the role of the federal government in addressing the opportunity gap, and how she thinks the bill will impact such efforts. “The real question,” said Jones, “is how we collectively utilize [the tools of the TCJA] to continue to invest in places that, with investment, can grow.”

“I think the federal government can incentivize the world we want to live in,” Congresswoman Sewell said. She believes the federal government should be in the business of helping provide the basics that people need. Tax-based economic incentives such as the Low Income Housing Tax Credit (LIHTC) and the New Markets Tax Credit (NMTC) are critical to this role, she noted.

The Congresswoman mentioned the Earned Income Tax Credit (EITC) as a critical tool to lift people out of poverty. She would have liked to see the TCJA increase the EITC and extend it to childless adults, as many young men of color could benefit from it, but the final version of the bill did not address the EITC. She believes one new feature of the bill holds promise, however. “Opportunity Zones are perhaps the biggest potential economic development tool in this law,” she said. But a lot of their success will have to do with targeting the right areas. “I think it is important if we are to close the opportunity gap that we uplift everyone, rural communities in particular.”

The Economic Impact of the Tax Bill
In the first panel discussion, moderator Jeanne Shehadi, senior writer at CNNMoney, spoke with a group of tax policy experts about how they think the tax bill will affect families and the economy. The panel represented a broad spectrum of viewpoints, featuring: Douglas Holtz-Eakin, president of the American Action Forum; Chye-Ching Huang, deputy director, federal tax policy, Center on Budget and Policy Priorities; and Mark Mazur, Robert C. Pozen Director of the Urban-Brookings Tax Policy Center.

Panelists generally agreed that corporate taxation reforms were necessary, but they disagreed on whether the bill took the right approach. There was also agreement that the real issue of concern is the stagnation of wages for working and middle class, but again, panelists differed on whether this set of tax cuts is the right way to handle it. Holtz-Eakin stated that the corporate tax cuts “are the best part of the TCJA,” arguing that they provide incentives for companies to invest and innovate in the U.S. rather than overseas, which “has great promise to improve productivity and stop the stagnation of wages.”

While the White House believes the corporate tax cuts will pay for themselves, despite disagreement from the Congressional Budget Office and leading economists, Huang cautioned that the real cost will come from diminished resources for people and places. “It hammers families by paying for corporate tax cuts with cuts to health coverage [and] other costs in terms of things we need in communities,” she said. High-income people and high-wealth corporations will gain the most. 

Moderator Jeanne Shehadi (left) interviews panelists (l-r) Douglas Holtz-Eakin, Chye-Ching Huang and Mark Mazur

 “In an ideal world,” Huang noted, “we would be seeing investments on both the spending side and the tax code.” Holtz-Eakin agreed, saying “You look at the problem you want to solve and set the policy dials toward that. Tax should not be the only thing.” He cited education improvements as another logical way to address the opportunity gap.

Panelists debated whether the tax bill represented purposeful policymaking or amounted to a “fiscal experiment.” The underlying assumption of the TCJA is that corporate tax savings will put more money into the economy, which will lead to increased productivity and thus higher wages. According to Mazur, however, “the truth is we don’t really know what drives productivity.” Other unknowns include: Who will see higher wages -- low- and moderate-income workers, or management and executive-level employees? Will the money corporations save on taxes go back into the economy or into shareholder pockets?

Said Huang, the best we can say about the effects of the bill is, “We’ll see,” but there are a lot of links in the chain of intended effects, and a lot of lag time before we will be able to see if they come to fruition. Huang argued a direct approach that impacted low- and moderate-income people through ETIC or Child Tax Credit expansion would have been better.

The Impact of the Tax Legislation on Community- and Place-Based Investments
The day’s second panel, moderated by National Development Council Washington D.C. Office Director Jane Campbell, looked at the impacts of the tax bill on the specific resources that local municipalities and the community development field depend on for investments. The panel included policy experts and on-the-ground practitioners: Matt Josephs, LISC Senior Vice President for Policy; Brian Kenner, Deputy Mayor for Planning and Economic Development, Washington, D.C.; Kim Rueben, Senior Fellow and Project Director, State and Local Finance Initiative, Urban Institute; and Jerry Rickett, President and CEO, Kentucky Highlands Investment Corporation.

 Campbell began the discussion by sharing with participants a graph of community development outlays as percentage of GDP since the early 1960s. The graph showed steady decline since the 1970s, with the exception of an uptick around 2008. Noted Campbell, “there hasn’t been political will” to invest in community development programs. There has been will to do tax credit investments, however, and those have been an effective tool for investment over the past couple of decades.

Moderator Jane Campbell (left) discusses tax credits with panelists (l-r) Matt Josephs, Brian Kenner, Kim Rueben and Jerry Rickett.

What will be the impact of the TCJA on these tax credit investments? The panelists expect it to be challenging. LISC’s Josephs noted that community development advocates had to “play defense” just to keep private activity bonds and NMTCs alive in the bill. “We were successful in doing that, but [otherwise] I don’t think we gained a lot.”

According to Josephs, community development may lose out overall. “With the corporate tax rate now going down, investors will not pay as much for the Low Income Housing Tax Credits because there’s not as much return.” Before the TCJA, credit prices were over a dollar and after, they immediately dropped to around 85 cents, Josephs said. The market has now settled, but in low 90s. With less equity available for projects, that means fewer units can be built, or there will be less subsidy to make units affordable to families with very low incomes.

Likewise, Rueben spoke about the impact the bill will have on the ability of state and local governments to raise money for investments. “The benefit from municipal debt in some tax credits have gone down,” meaning there is less need for things that lower the tax burden, like credits and municipal bonds, “and the impact of them will be lower. There will be pressure on states to lower taxes or shift the kinds of taxes they are raising.” 

Nevertheless, the news is not all bad. As Josephs noted, private activity bonds and NMTC were in danger of being eliminated entirely in some versions of the bill, but survived in the final legislation. In addition, lawmakers added a tax provision in the Omnibus bill that included a 12.5% increase in housing credit allocations.  That bill also included a provision called income averaging that will allow some LIHTC units to go to residents earning as much as 80% of Area Median Income, as long as the average income across all units in a project remain at or below 60%.  This provision could prove helpful in high-cost markets as well as rural areas. 

The panelists focused on the TCJA’s provision for Opportunity Zones as a potentially useful tool for economic development. Ricketts shared his organization’s successes as a result of its earlier Empowerment Zone designation, and said he was hopeful The Opportunity Zones initiative could help the region as well. Kenner described Washington, D.C. as a “high-cost city, but also a high-amenity city.” He said affordable housing is the primary issue for the city, with resident employment a close second. “I’m in the business of making sure we get things to places where they are not,” he said, adding that he was hopeful that the Opportunity Zone legislation will be a catalyst for investment throughout the city, but will also drive resources to areas of need. He cautioned, however, that many of these areas have been underinvested for years. In Kenner’s view, Opportunity Zones “can help bring more investment, but they will not solve everything.” 

Closing Thoughts
Brett Theodos, Urban Institute Principal Research Associate, offered closing remarks, telling participants the TCJA represents big changes on many fronts, including the local side. We need to focus on Opportunity Zones as potential drivers of economic growth, but we must also keep attention on LIHTC and other programs for which the TCJA has eroded effectiveness. He reminded the audience that the country is still at the early stage of significant macroeconomic and demographic changes, with Baby Boomers now retiring in large numbers, and this will impact the economy and individuals on several fronts. “We need to spur productivity growth and pay attention to the size of the pie, as well as how big the slices are.”

Tax Credits in Action
Click here for an in-depth look at how the tax code connects to community development initiatives, using a real-world example in Washington, D.C.


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