By cutting rates for the wealthy, the Tax Act slashes the value of the Low-Income Housing Tax Credit.
This article appears in the Summer 2018 issue of The American Prospect magazine. Subscribe here.
A construction fence surrounds the decaying Church of the Redeemer in Flatbush, one of Brooklyn’s many gentrifying neighborhoods. The congregation has provided the land to the nonprofit Mutual Housing Association of New York to create an oasis of 75 affordable apartments. Rents will start at $935 a month, and will be guaranteed affordable for 30 years. The church, meanwhile, will build itself a new home, tapping $5 million from selling construction rights to the housing group.
The key subsidy making this deal possible is the Low-Income Housing Tax Credit, a better-than-nothing gimmick that helps the poor by rewarding the rich. Over the past three decades, LIHTC—pronounced lie-tek to people in the business—has helped finance more than two million affordable apartments, or about double the number of remaining traditional public housing units produced in its heyday from the 1930s to the 1970s. In this case, Bank of America will supply most of the $20 million to finance construction of the Flatbush apartments, because the law allows the bank to use this credit to reduce its corporate taxes by one dollar for every dollar it provides to a developer of low-income housing.
But thanks to the 2017 Republican Tax Act, the housing credit is suddenly worth a lot less. Why? Because the Tax Act dropped the corporate rate from 35 percent to 21 percent.