W&M Subcommittee Schedules Hearing on Tax Incentives for Distressed Communities

The hearing will focus on the tax incentives established by the Omnibus Budget and Reconciliation Act of 1993 and the Tax Relief Act of 1997 for designated empowerment zones and enterprise communities. The subcommittee will also look at legislation introduced by Reps. J.C. Watts Jr., R-Okla., and James M. Talent, R-Mo. (H.R. 815, the American Community Renewal Act of 1999) and the efforts of Rep. Thomas M. Davis, R-Va., who is developing a proposal for the parts of the District of Columbia that have been designated enterprise communities.

The hearing is scheduled for 2:00 p.m. in Room B-318 of the Rayburn HOB building.

BACKGROUND

[2] The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) authorized the U.S. Department of Housing and Urban Development and the U.S. Department of Agriculture to designate 10 empowerment zones (6 urban, 3 rural, and 1 Indian reservation) and 100 enterprise communities (65 urban, 30 rural, and 5 Indian reservations) based on certain eligibility requirements, including specified poverty rates and population and geographic size limits. Qualified businesses operating in these designated areas are eligible for specified tax incentives.

[3] For qualified businesses operating in these empowerment zones, the following tax incentives were established: (1) a 20 percent wage credit for the first $15,000 in wages paid to a zone resident who also worked within the zone, (2) an additional $20,000 limit for expensing under section 179, and (3) special tax-exempt financing. Qualified businesses operating in enterprise communities were eligible for the tax-exempt financing but not the wage credit or additional section 179 expensing limit.

[4] The Tax Relief Act of 1997 (97 Act) established two more urban empowerment zones (effective January 1, 2000) in which qualified businesses would be eligible to use each of the tax incentives created in OBRA 93. The legislation also created 20 additional urban and rural empowerment zones (effective January 1, 1999) in which qualified businesses could utilize the increased 179 expensing limits and the tax-exempt financing, but not the wage credit.

[5] Portions of the District of Columbia were designated an enterprise community in 1994 pursuant to OBRA 93, and qualified businesses were eligible for tax-exempt financing. The 97 Act designated a District enterprise zone which included the enterprise community designated in OBRA 93 and several other tracts. Qualified businesses operating in the newly designated enterprise zone were eligible for each of the tax incentives created in OBRA 93 for empowerment zones. In addition, the 97 Act provided for a 0 percent capital gains rate upon the sale of qualified assets held for five years or longer in the District and a $5,000 credit for first-time home buyers in the District.

[6] Reps. J.C. Watts, Jr. (R-OK) and James M. Talent (R-MO) have introduced H.R. 815, the "American Community Renewal Act of 1999," and Rep. Tom Davis (R-VA) is developing a proposal for the District of Columbia. The Administration has proposed a "New Markets" incentive, extending and expanding the empowerment zone incentives, and expanding specialized small business investment company incentives.

[7] In announcing the hearing, Chairman Houghton stated: "The challenge of revitalizing distressed communities is critically important. I know this first hand because the current economic boom hasn't reached every community in New York's Southern tier. We can't afford to leave anyone behind. We need to take a good look at how well tax incentives in current law are working, as well as proposals to expand incentives to help the communities which need it most."

FOCUS OF THE HEARING

[8] The hearing will examine the operation of current law tax incentives for distressed communities, as well as several proposals.