President Trump and Republican congressional leaders today 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.
In an official statement, NAHB Chairman Granger MacDonald said this plan “represents a positive step in the right direction.”
The proposal, entitled “Unified Framework for Fixing Our Broken Tax Code,” is not a comprehensive tax reform plan. Rather, it is a set of detailed principles intended to serve as a template for the tax-writing committees. But it also allows the committees the flexibility to work their will and fill in the many unmentioned details.
Here are key components of the GOP tax plan:
- Homeownership tax incentive. The framework eliminates all itemized deductions but retains tax incentives for home mortgage interest and charitable contributions. The document notes that these “tax benefits help accomplish important goals that strengthen civil society, as opposed to dependence on government: homeownership and charitable giving.
NAHB recognizes that although the mortgage interest deduction remains untouched, its effectiveness could be diminished as more families elect to take a higher standard deduction that is also included in the proposal. NAHB has not weakened its long-standing policy support for homeownership tax incentives. As the debate moves forward, NAHB will work with the White House and members of Congress to ensure that all American home owners, not just a select few, have access to a meaningful housing tax incentive.
- Low Income Housing Tax Credit (LIHTC). In a major victory for NAHB and the housing community, the framework explicitly preserves the LIHTC as one of two business tax credits “where tax incentives have proven to be effective in promoting policy goals important in the American economy.” The other tax incentive retained is the popular research and development (R&D) tax credit.
- Business interest deduction. NAHB launched an aggressive advocacy campaign to educate Congress on the importance of debt to real estate, particularly for smaller home builders. That message was received, and the framework includes a significant concession by moving away from full repeal. The framework now proposed to “partially limit” the deduction for interest on business debt for C-corporations, while leaving the door open for pass-throughs. The tax reform plan states that “the [congressional] Committees will consider the appropriate treatment of interest paid by non-corporate taxpayers.” More details are needed, and we will continue to work with Congress to address our concerns.
- Lower individual marginal tax rates. Individual rates would be consolidated into three brackets (12%, 25%, and 35%). The blueprint allows flexibility for an additional top rate to the “highest-income” taxpayers to “ensure that the reformed tax code is at least as progressive as the existing tax code.”
- Tax structure for pass-throughs: 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%. 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.”
- Tax structure for corporations. The framework proposed a corporate tax rate of 20% and moving to a “territorial” system in which companies are generally not taxed on foreign income.
- Expanded expensing. The framework would allow businesses to immediately expense the cost of new investments in depreciable assets other than structures and land. This expanded expensing provision is put forward as a temporary tax provision that will last for at least five years. The framework is otherwise silent on depreciation periods for structures, or what would replace expensing after it expires in five years. NAHB has advocated for maintaining the 27.5-year depreciation period for multifamily real estate and endorsed an academic study showing the true economic life of multifamily structures is approximately 20 years.
- Estate tax. The framework would repeal it.
- Alternative Minimum Tax. The framework would repeal it.
- Standard deduction. The plan would nearly double the standard deduction to $12,000 for single filers and $24,000 for married taxpayers filing jointly. This big increase would mean most people who itemize would switch to the standard deduction. In turn, this could marginalize the mortgage interest deduction.
Finally, while the framework generally envisions that deductions and credits not explicitly mentioned would be repealed, it continues to provide the tax-writing committees with flexibility to retain other provisions “to the extent budgetary limitations allow.” This gives NAHB the opportunity to continue to engage on other key provisions.
For more information, contact J.P. Delmore at 800-368-5242 x8412.