2017 Tax Reform Plan
President Trump and Republican congressional leaders on Sept. 27 introduced a broad framework to alter the tax code that would lower business and individual rates. During the past several months, NAHB has conveyed its views and concerns to policymakers and firmly believes that this plan represents a positive step in the right direction.
Of note, the proposal retains the Low Income Housing Tax Credit, the most indispensable tool to help produce affordable rental housing. It also significantly lowers the pass-through rate, which will reduce the tax bill of thousands of small businesses and help to spur job and economic growth. But with tax reform being an issue of such importance, difficult trade-offs must be made. Although the mortgage interest deduction remains untouched, its effectiveness could be diminished as more families elect to take a higher standard deduction.
As the debate moves forward, NAHB will work with the White House and members of Congress to mitigate any detrimental effects that this development could have on the housing market. On Oct. 3, NAHB voted to revise its tax policy to provide more flexibility as we work with Congress on updating the tax code.
NAHB will seek to ensure that any final reforms to the tax system will increase economic opportunities, expand the middle class and ensure that affordable homeownership and rental housing opportunities remain an accessible goal.
NAHB supports a tax system that is simple and fair, and that promotes greater housing opportunity for Americans across the economic spectrum.
Highlights of the Tax Reform Plan
The Republican plan calls for reducing the seven income tax rates that currently range from 10 percent to 39.6 percent, down to three brackets (12 percent, 25 percent and 35 percent). However, the plan does note that an additional top individual tax rate may be proposed to ensure that the reformed code “is at least as progressive as the existing tax code.”
The tax reform proposal would also nearly double the standard deduction to $12,000 for single filers and $24,000 for married taxpayers filing jointly. This jump in the standard deduction would mean most people who itemize would switch to the standard deduction. In turn, as noted above, this could marginalize the mortgage interest deduction.
The framework proposes to limit the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships, and S corporations to 25 percent. The framework does assume that measures will be adopted “to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”
The plan would lower the corporate tax rate from 35 percent to 20 percent. NAHB is also urging policymakers to take steps to ensure that lower corporate rates do not diminish the effectiveness of the Low Income Housing Tax Credit program, particularly given that the nation is experiencing an acute shortage of affordable housing.
Business Interest Deduction
A June 2016 House Republican blueprint proposed eliminating the business interest deduction. NAHB has aggressively advocated for keeping this vital deduction, as debt is a major driver for real estate development. Thanks to these efforts, the 2017 framework proposes to “partially limit” the deduction for interest on business debt for C-corporations, while leaving the door open for pass-throughs. More details are needed, and NAHB will continue to work with Congress to address these concerns.
Just as the business interest deduction provision needs to be more thoroughly refined, NAHB is well aware that many other outstanding tax issues are not included in the framework. The draft is leaving it up to the appropriate congressional committees to work their will and fill in the blanks. NAHB will remain engaged on all fronts.
Other Key Components
Of importance to the residential construction industry, the GOP tax plan would:
- Keep the Low Income Housing Tax Credit
- Repeal the estate tax
- Abolish the Alternative Minimum Tax
Why It Matters
As Congress works to make significant changes to the tax code, it is essential that lawmakers take the right approach that will put more money into the pockets of hard-working American families, spur job and economic growth, and ensure the ongoing recovery in the construction industry. Therefore, NAHB will continue to maintain a seat at the table and fight to ensure that the interests and concerns of the housing community are addressed as negotiations move forward.