- The Washington Times - Monday, August 7, 2017

Lawmakers are scouring the tax code to eliminate credits and deductions as part of a broad tax reform, but Congress appears poised to protect and perhaps to even expand a special break for real estate developers who build rental housing for low-income people.

The credit has helped finance some 2.4 million units as of 2014, and the cost — an estimated $34 billion over the next 10 years, according to congressional scorekeepers — is relatively small in the context of trillions of dollars likely to shift in the budget under any tax reform.

But at a time when the White House and Capitol Hill are looking to flatten the tax code by cutting special breaks and using the savings to lower rates, the real estate credit seems to be going the wrong direction.

“Somebody’s ox has to get gored in order to make the numbers add up,” said Brian Riedl, a senior fellow in budget, tax, and economics at the Manhattan Institute for Policy Research.

He said while the cost of this one break may be small by federal budget standards, it’s emblematic of the problems Congress has had over the years trying to control the tax code.

“Republican tax-writers seem interested in passing out the candy, but they don’t seem interested in actually finding the painful trade-off,” said Mr. Riedl, a former staffer for Sen. Rob Portman.

Sen. Orrin Hatch, who chairs the tax-writing Senate Finance Committee, is helping lead the push to expand the low-income housing credit, along with Democratic Sen. Maria Cantwell of Washington.

Mr. Hatch recently defended the program as a way to push control of the credits away from Washington, D.C., bureaucrats and toward the local housing agencies that dole them out, while acknowledging the system is worth keeping tabs on moving forward.

“This important section of the tax code has enjoyed bipartisan support,” Mr. Hatch said at a hearing he convened on affordable housing earlier this month.

The credit in question is given over a 10-year period to businesses or groups that build rental housing, with the amount of the award depending on the number of low-income people who ultimately live in the property.

Sen. Sherrod Brown, Ohio Democrat, called the program a “critical tool.”

“[It] certainly should be protected and expanded regardless of whether tax reform develops into a real bipartisan process or remains the partisan fantasy as people here talk about,” he said.

It’s been widely praised for financing millions of low-income housing units, but has also come under fire from federal investigators in recent months for oversight issues.

“IRS oversight over this program has been minimal,” said Daniel Garcia-Diaz with the Government Accountability Office.

He said over the past 30 years, agencies that dole out the credits have been audited only a handful of times, and even when they were examined the resulting data often included errors and conflicts.

The IRS, meanwhile, says the agency did not count regular reviews as part of its statutory duties, and that local agencies should bear that responsibility.

But those in the industry say there are internal safeguards federal investigators might not see, and that the program is invaluable amid rising rental costs and federal resources dwindling elsewhere.

“We take it very, very seriously,” said Granger MacDonald, chairman of the National Association of Home Builders. “I realize that’s hard to track from a GAO standpoint, but on a local basis, there is a lot of oversight to make sure the compliance of this program is being carefully, carefully monitored.”

Efficacy questions aside, though, budget analysts said they’re looking for signs that Congress knows the bind it’s in. If Republicans don’t find enough offsets and pursue a plan that adds to the federal deficit in the long run, they’ll face significantly more restrictions on what they can do legislatively — as frustrated conservatives grumbled about during the failed Obamacare repeal efforts.

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