New Markets Tax Credit Fact Sheet
The New Markets Tax Credit (NMTC) was designed to increase the flow of capital to businesses and low income communities by providing a modest tax incentive to private investors. Over the last ten years, the NMTC has proven to be an effective, targeted and cost-efficient financing tool valued by businesses, communities and investors across the country.
The American Taxpayer Relief Act passed at the end of the 112th Congress includes a two-year extension of the New Markets Tax Credits with $3.5 billion in annual credit authority provided for 2012 and 2013. The NMTC expired at the end of 2013, but it can still be extended, and extension legislation has been introduced in the House (H.R. 4365) and Senate (S. 1133).
The NMTC was authorized in the Community Renewal Tax Relief Act of 2000 (PL 106-554) as part of a bi-partisan effort to stimulate investment and economic growth in low income urban neighborhoods and rural communities that lack access to the patient capital needed to support and grow businesses, create jobs, and sustain healthy local economies.
The NMTC program attracts capital to low income communities by providing private investors with a federal tax credit for investments made in businesses or economic development projects located in some of the most distressed communities in the nation – census tracts where the individual poverty rate is at least 20 percent or where median family income does not exceed 80 percent of the area median.
A NMTC investor receives a tax credit equal to 39 percent of the total Qualified Equity Investment (QEI) made in a Community Development Entity (CDE) and the Credit is realized over a seven-year period, 5 percent annually for the first three years and 6 percent in years four through seven. If an investor redeems a NMTC investment before the seven-year term has run its course, all Credits taken to date will be recaptured with interest.
- Between 2003 and 2012, $31 billion in direct NMTC investments were made in businesses that created approximately 550,000 jobs, at a cost to the federal government of less than $20,000 per job and these NMTC investments leveraged over $60 billion in total capital investment in businesses located in communities with high rates of poverty and unemployment.
- By law, all NMTC investments must be made in economically distressed communities. However, more than 72 percent of all NMTC investments have been in communities exhibiting severe economic distress, including unemployment rates more than 1.5 times the national average, a poverty rate of 30 percent or more, or a median income at or below 60 percent of the area median.
- The federal tax revenue generated by NMTC investments covers the cost of the NMTC as measured in terms of revenue lost to the federal government. Between 2003 and 2010, NMTC investments generated over $5.3 billion in federal tax revenue and over $3 billion in state and local tax revenue; while the revenue loss to the federal government over the same period of time was $5.4 billion.
- In 2010 alone, NMTC investments generated almost $1.1 billion in federal tax revenue, easily offsetting the estimated $720 million cost of the program for the federal government and providing a 50 percent return on investment.