Time to make the New Markets Tax Credit permanent

Senate Finance Committee Chairman Orrin Hatch (R-Utah) and Ranking Member Ron Wyden (D-Ore.) are looking to address the nation’s tax code and create an efficient and fairer system. To take this on, they formed five Tax Reform Working Groups last month, each covering a specific jurisdiction and tasked with getting input from the public and stakeholders on how our country’s tax policies affect people, businesses and communities. The deadline for those comments was this Wednesday, and one of those policies up for discussion is the New Markets Tax Credit (NMTC). 

The NMTC has leveraged an unprecedented level of investment to low-income communities—in short, it is a very successful federal program. The reason? The results prove it is one federal program that is working as it was intended. In fact, it has generated $31 billion in direct NMTC investments made in businesses, creating approximately 750,000 jobs, in communities with high rates of poverty and unemployment since it was implemented. In all, these investments leveraged more than $60 billion in total capital investment in businesses located in economically distressed areas. 

{mosads}It should come as no surprise that it has a good deal of support on both sides of the aisle in Congress, as well as from the administration—agreement that is not enjoyed by most government policies.  

The NMTC was first authorized in the Community Renewal Tax Relief Act of 2000 (PL 106-554) as part of an effort by President Bill Clinton and then-Speaker of the House Dennis Hastert (R-IL) to stimulate investment and economic growth in low-income communities. The Bush administration successfully launched the program, publishing the interim rule that initially governed the NMTC and allocating the first rounds of Credits from 2003-2007. Since then, temporary extensions have been passed authorizing the NMTC. However, the uncertainty from year to year stifles the potential for this effective and necessary community development tool. 

In its submission to the working group covering community development and infrastructure, headed by Sens. Dean Heller (R-Nev.) and Michael Bennet (D-Colo.),  the coalition documented the impact of the NMTC, describing how it fits within the federal community development landscape and recommending four specific changes to the program:

·         NMTC permanence—a long-term horizon provides investors and Community Development Entities more time to plan and invest in the infrastructure necessary to support the program;

·         Increase allocation authority—demand for credits has vastly outpaced the amount authorized; for example, Treasury received allocation applications totaling $301 billion for only $43.5 billion in authorized NMTC allocations between 2003 and 2014, resulting in a success rate of less than 25 percent for applications for credits; 

·         Index the NMTC allocation to inflation—after adjusting for inflation, NMTC allocation authority has declined by 12.3 percent since 2007; and

·         Relief for NMTC investors from the Alternative Minimum Tax—other investment tax credits, including the Low Income Housing Tax Credit (LIHTC) and the Historic Tax Credit (HTC), are exempted from Alternative Minimum Tax and bringing NMTC investments into line with this standard would allow a greater pool of investors to participate in the program, increasing competition and efficiency, and driving even more capital to businesses into communities that need it the most.

All of these recommendations are contained in the bipartisan NMTC extension bills introduced in the House (H.R. 591) and Senate (S. 855).

The NMTC has proven its effectiveness time and again over the last decade. It is a flexible financial tool, addressing both the needs of small town communities and urban neighborhoods left outside the economic mainstream. Moreover, the NMTC more than pays for itself—every dollar of forgone federal revenue generates eight dollars of new investment in the poorest communities in America, creating jobs and business opportunity, and improving facilities and services. These results make it clear that extending the NMTC and making it a permanent part of our nation’s tax code should be a priority for Congress.

Rapoza is spokesman for the New Markets Tax Credit Coalition.