The Trump administration’s 2018 budget proposal does not provide any further detail regarding which special interest tax breaks, like CDFI or NMTC, are targeted for elimination, according to an analysis by McDermott Will and Emery.
This stands in stark contrast to last November’s announcement by the Community Development Financial Institutions fund (CDFI) during Obama’s administration that 120 organizations will receive a record $7 billion in New Markets Tax Credit (NMTC).
Why This Matters
The NMTC program encourages private capital into low-income communities by permitting investors to receive a 39% tax credit against their federal income tax in exchange for making equity investments in specialized financial intermediaries called Community Development Entities (CDEs). Its impact and benefits are proven, and we have advocated for its permanence.
Community Development Financial Institutions (CDFI) Fund grants are also expected to be eliminated, effecting a savings of approximately $210 million. Elimination of the grants would reduce funding by $10 million from $24 million this year to $14 million in 2018.
Other Tax Credits Threatened
PTC, the federal renewable electricity production tax credit, an inflation-adjusted per-kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources was not also mentioned.
ITC, the solar Investment Tax Credit (ITC), a 30% tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties was also not mentioned.
“The Budget Proposal is silent regarding energy-related tax provisions such as the production tax credit (PTC) and the investment tax credit (ITC), as well as the New Markets Tax Credit (NMTC) program.
Past proposals from the Obama Administration called for: (i) permanently extending the PTC and ITC; (ii) making the PTC refundable; (iii) allowing the PTC for solar facilities that qualify for the ITC and on which construction began after December 31, 2016; and (iv) enhancing and permanently extending the NMTC.
The PTC and ITC were extended by Congress in 2015, but are subject to phase outs.
For wind facilities, the PTC and ITC are reduced by 20 percent for facilities the construction of which began in 2017. For wind facilities that begin construction in 2018, the PTC and ITC are reduced by 40 percent. For wind facilities that begin construction in 2019, the PTC and ITC are reduced by 60 percent.
For solar facilities, the ITC is currently 30 percent. However, the ITC is reduced to 26 percent for projects that begin construction in 2020, and 22 percent for projects that begin construction in 2021. The ITC is reduced to 10 percent for solar projects where construction begins before 2022 but the project is not placed in service before 2024.
The NMTC was last extended by Congress in 2015 through December 31, 2019.”
Sources: McDermott Will and Emery, FY2018 Budget Proposal
