1999 Winter Meeting

Treasury Secretary Rubin Explains New Tax Incentives to Urban Economic Panel

By Larry Jones

Dallas Mayor Ron Kirk welcomed U.S. Treasury Department Secretary Robert E. Rubin to the January 27 meeting of the Conference's Urban Economic Policy Committee, where the Secretary underscored the President's commitment to local leaders and their efforts to improve the quality of life for inner city residents. Rubin specifically reviewed a number of proposals included in the President's FY2000 budget request, initiatives which are designed to generate economic growth and create jobs for residents of distressed communities and neighborhoods. Among the proposals Rubin discussed were:

• Community Reinvestment Act (CRA) -- He pointed out that the Administration will continue its strong enforcement of CRA to combat the practice of "red-lining" communities by publicly-insured banks. Data shows that lending to minority and low-income borrowers is on the rise; since 1992, the private sector has pledged over $1 trillion in loans for community development.
• New Markets Tax Credit -- The President's budget, he noted, is proposing a "New Markets Tax Credit" program that will help generate $6 billion in private sector investment over the next 5 years for business growth in low- and moderate-income rural and urban communities. Under this proposal, investors will be able to claim a tax credit of 25 percent of the amount invested in institutions (such as community development banks) that serve these areas and communities.
• Low Income Housing Tax Credit --The President is requesting $1.7 billion to be used over the next 5 years to increase each state's credit cap from $1.25 to $1.75 per capita, a 40 percent adjustment, in order to create an additional 150,000 to 180,000 new rental housing units for low-income families.
• Brownfields Tax Incentive -- Rubin also explained that the President's budget is asking Congress to make permanent the existing brownfields tax incentive, which now allows private parties to "expense" their clean-up costs at sites in certain targeted areas, to further support the clean-up and redevelopment of brownfields through the nation.

Housing and Urban Development Assistant Secretary Cardell Cooper also spoke with mayors about a number of HUD initiatives which are designed to help revitalize distressed communities. He mentioned that the Administration's budget calls for $150 million for the 15 recently-designated Empowerment Zones, and an additional $45 million for 15 communities designated as Strategic Planning Communities, which would each receive one-time grants of $3 million to launch their revitalization efforts. Cooper also said the Administration is requesting $750 million for the Community Empowerment Fund, a program which includes $125 million in grants and $625 million in loan guarantees to increase the flow of capital for business investment and job creation in targeted communities and rural areas.

Russ Sullivan, Legislative Director for Senator Bob Graham (FL), provided mayors with an update on the Internet Tax Commission, an advisory body which was created last year pursuant to the "Internet Tax Freedom Act." The Commission was to be constituted with equal representation from business interests and state and local governments, and was directed to study how state and local sales taxes can be applied to interstate commerce which is conducted over the Internet and through catalogue mail-order sales.

Sullivan pointed out that the Commission was imbalanced, with nine business representatives and only six state and local representatives and one former state legislator. He indicated that Sen. Graham has been working to convince Congressional leaders to correct the appointments to the commission by appointing eight state and local and eight business representatives, as the law requires.

Under current law, it is almost impossible to collect state and local sales taxes on interstate sales conducted over the Internet because out-of-state merchants can not be forced to collect such taxes. With more people purchasing goods and services tax-free over the Internet, state and local governments are losing more and more revenues. The work of this Commission was intended to address this problem. However, with an imbalance on the Commission weighing in favor of business, it is unlikely this problem will be corrected.