On Tuesday morning, executives of the lumber and building materials industry met at The Wink Hotel, in Washington D.C., to prepare for their visits with legislators on Capitol Hill about some of the most pressing political issues facing the industry.
Kirk Ives, director of legislative and regulatory affairs at the Northeastern Retail Lumber Association (NRLA), and Jonathan Paine, president and CEO of the National Lumber and Building Material Dealers Association (NLBMDA), encouraged attendees to focus on four key areas.
1) Qualified Improvement Property (QIP) Fix
The Tax Cuts and Jobs Act enables businesses to deduct the full cost of some investments. However, due to an “unintentional drafting error,” qualified improvement property (QIP) is excluded. “Therefore, a legislative fix is required,” Paine stated.
QIP applies to improvements made to permanent interior structures (such as lighting, exit signs, and flooring) of nonresidential buildings.
“Under prior law, assuming a $100 investment and no inflation, a business could recover about 89% of the investment cost. As intended under the tax cut, businesses could recover the entire 100% investment cost in one year. However, due to this drafting error of the law, businesses can only recover 55% of the investment cost over 39 years. The numbers are even worse when taking inflation into consideration. So, it had the complete opposite effect when they drafted the tax cuts,” Paine said.
To further clarify the gravity of the error, Paine added, “since businesses can only deduct $42 of each $100 investment, that means $58 of each $100 investment is subject to income tax. Thus, the tax burden for such an investment is now more than twice what it was under prior law.”
The mistake, Paine mentioned, happened as an unintended consequence of previous tax cuts made by the Trump administration. “It’s something that happened unintentionally when they drafted the law. It was overlooked and, now, it’s on us to help Congress make that correction,” Paine stated.
So, Paine encouraged executives to ask their legislative representatives to cosponsor legislation to allow tax parity for QIP (S. 803; H.R. 1869).
2) Health Insurance Tax Relief
As part of the Affordable Care Act, the health insurance tax (HIT) will charge health insurance companies a $16 billion tax for 2020 and beyond. According to research by Oliver Wyman, commissioned by UnitedHealth Group, the “taxes on health insurance are nondeductible for federal tax purposes for health insurers.”
So, for each dollar paid in taxes, more than a dollar in premiums must be collected, resulting in an annual burden of more than $20 billion that could be foisted on employers and employees in the form of higher premiums.
“That’s going to work out to about a $479 increase in small group market premiums for family plans and a $458 increase in large group market premiums for family plans,” Ives said.
The Health Insurance Tax Relief Act (H.R. 1398, S. 172) suspends the HIT for 2020 and 2021. Attendees were encouraged to ask House and Senate representatives to cosponsor and approve the HIT Relief Act to suspend the HIT for the next two years and reduce the health care burden for employers.
3) Affordable Housing Credit Improvement Act
To address the country’s shortage of affordable housing, Paine encouraged attendees to appeal to their House and Senate representatives to protect and strengthen the Low-Income Housing Tax Credit (LIHTC). The LIHTC, which was created in 1986, has financed development for more than 3 million units and provided affordable housing to 7.2 million low-income families. Approximately 100,000 new units are made available each year because of the LIHTC. It is “the largest source of new affordable housing in the United States,” Paine stated.
However, when President Trump signed the Tax Cuts and Jobs Act in December 2017, effectively dropping the corporate tax rate from 35% to 21%, this “took away the incentives for developers to build affordable housing,” Paine said.
There are two types of low-income housing tax credits: a 9% tax credit and a 4% tax credit. The 9% credit subsidizes about 70% of eligible costs. It also has a tax credit rate floor of 9%. However, Paine added, “the problem is that there is a limited pool of credits and the program is oversubscribed, so there isn’t enough to go around for this.”
The 4% tax credit only subsidizes 30% of eligible construction costs. Unlike the 9% tax credit, the 4% tax credit does not have a rate floor at 4%, Paine warned. “That means the tax credit rate is below 4%. Establishing a 4% credit rate floor would finance an additional 65,000 rental units…over the next 10 years,” he added.
Paine encouraged executives to ask members of Congress to cosponsor the Affordable Housing Credit Improvement Act, which would establish a 4% credit floor. The legislation, Paine said, should be introduced later this month.
4) Softwood Lumber Agreement
The last softwood lumber agreement (SLA) between the U.S. and Canada expired in 2015, and the absence of a new SLA between the two countries has been disruptive to the building supply chain, Ives stated. As a result, the pricing of structural panels and framing lumber has been volatile. There’s no specific legislation to support at the moment, so Ives and Paine encouraged attendees to raise awareness of the problem to new House and Senate representatives.
For more information about the Legislative Conference priorities, visit https://www.dealer.org/page/2019legconmaterials