TAX REFORM - September 29, 2017 - Roundtable Weekly

GOP Tax-Writers Launch Tax Reform Effort with “Framework” that Leaves Crucial Details to Congressional Committees  

The Trump Administration and GOP congressional leaders kicked off a unified tax reform push this week by releasing a “framework” that proposes significant reductions in business and individual taxes, yet leaves important details to House and Senate tax committees to develop.

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Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer testifying before the Senate Finance Committee on Sept. 19, 2017.

- Written Statement
for the Record
 -

- Video compilation of DeBoer's oral statement and Q&A -

Roundtable President and CEO Jeffrey DeBoer yesterday issued a statement in response: “(The) tax reform 'framework'  is another significant step toward pro-growth tax reform.  As envisioned in the framework, reducing the tax on business income, encouraging capital formation and maintaining the strength of our capital markets will spur economic investment and job creation.  The commercial real estate industry is a positive contributor to America's economy.  The industry directly employs millions, provides local governments with its largest revenue source, and plays a key role in Americans' retirement savings.  We are confident that our economy can and should grow faster to the benefit of all.  Critical issues and details certainly are ahead and we intend to work closely with Congressional tax-writers as they take tax reform forward.” (Roundtable Statement, Sept. 27)

The release of the “Unified Framework for Fixing Our Broken Tax Code” by the “Big Six” policymakers — Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), House Ways and Means Chair Kevin Brady (R-TX), and Senate Finance Committee Chair Orrin Hatch (R-UT) — also follows Real Estate Roundtable testimony on business tax reform last week before Chairman Hatch’s committee. (Roundtable News Release, Sept. 19 and 1-page summary of the Framework)

In his Sept. 19 testimony, DeBoer encouraged modest changes for the current taxation of commercial real estate that would continue to promote economic growth, while cautioning policymakers on specific business tax reform concepts that could cause severe market dislocation.

Although crucial details of many tax reform proposals must now be developed within the congressional committee process, some proposals included in Wednesday's framework reflect views within The Roundtable’s testimony last week.  For example, DeBoer’s testimony noted the market distortion potential that could arise from expensing structures, while urging that the current depreciation periods for structures be reduced to around 20 years to better reflect economic reality.  (Reference:  download the Roundtable’s Sept 19 Senate Finance Committee written statement for the Record / watch a video compilation of DeBoer's oral statement and Q&A)

This week's tax reform framework includes the following proposals:

 Tax-Framework-Summary-image x225 

  The release of the entire “Unified Framework for Fixing Our Broken Tax Code” by GOP policymakers is summarized in a 1-page document about the Framework, above.

Business:

  • New capital investment after September 27, 2017 eligible for immediate expensing for at least five years (not applicable to structures).  
  • Tax regimes applicable to certain sectors will be “modernized” to “better reflect economic reality”
  • Corporate rate: 20% (reduced from current 35%)
  • Passthrough rate: business income limited to top rate of 25% (with measures to prevent wealthy individuals from converting personal income into business income)
  • R&D credit and low income housing tax credit (LIHTC) preserved
  • Corporate AMT repealed
  • International:    
    • Move to territorial system with 100% exemption for dividends from foreign subsidiaries  
    • Mandatory tax on previously untaxed foreign earnings at unspecified bifurcated rate; paid over several years
     
  • Pay-fors:
    • Partial limitation on net interest expense for C corporations (tax-writing committees to consider treatment for non-corporate taxpayers)
    • “Numerous other special exclusions and deductions” repealed or limited
    • Unspecified global minimum tax
    • Other base erosion measures and "rules to level the playing field between US-headquartered parent companies and foreign-headquartered parent companies" 

Individual: 

  • Reduces the current number of tax brackets from seven to three (12%, 25%, and 35%) 
    •  Top rate reduced to 35% (from current 39.6%); additional top rate possible
    •  Lowest rate raised to 12% (from current 10%)
  • AMT, estate, and generation-skipping transfer taxes repealed
  • Standard deduction roughly doubled
  • Pay-fors:
    • Most itemized deductions repealed  but deductions for home mortgage interest and charitable contributions retained; although not expressly mentioned, the state and local tax deduction is widely believed to be among the deductions that would be repealed. 

Although the Framework preserves the deduction for home mortge interest, it also proposes to double the standard deduction available to all taxpayers, which could significantly impact home values.

Brady SOI 2017 x200

Rep. Kevin Brady (R-TX), chairman of the powerful tax-writing House Ways and Means Committee and a member of the “Big Six,” will engage Roundtable members on tax reform issues during next week’s Fall Roundtable Meeting in Washington.

As The Roundtable has long-supported and emphasized the economic benefits of the Section 1031 Like-Kind exchanges — there is no specific language in the tax reform framework on the treatment of the exchanges.

Repeal of the federal tax deduction for state and local tax payments is a controversial revenue raiser that could sway the votes of many Republicans representing states with high tax rates such as New York and California. 

House Ways and Means Tax Policy Subcommittee Chairman Peter Roskam (R-IL) [a featured speaker at next week’s Fall Roundtable Meeting] said, “The members with concerns from high-tax states have to be accommodated. This has to be dealt with. The notion that you fix this and then it’s smooth sailing?  How naive.”  (Wall Street Journal, Sept 28)

A preliminary analysis of the framework’s cost by the nonpartisan Committee for a Responsible Federal Budget estimates the plan will result in gross tax cuts of about $5.8 trillion over a decade and includes about $3.6 trillion in revenue-raisers — resulting in a net cut of $2.2 trillion  through 2027.

Congress next week will attempt to pass budget resolutions with “reconciliation” instructions that would allow tax reform to move forward with a simple majority vote in the Senate.  House Majority Leader Kevin McCarthy (R-CA) said the House would vote next week on its fiscal 2018 budget resolution.  Senate Majority Leader Mitch McConnell (R-KY) added that the Senate Budget Committee plans to take up the House’s budget resolution next week. (BNA, Sept 29)

House Speaker Ryan and other GOP leaders have said that Thanksgiving is their goal for passing a tax reform bill. (CQ, Sept. 13). The timeline is tight, given the recent three-month government funding extension that expires Dec. 8, and the eventual need to once again fund the government to avoid a shutdown. (Roundtable Weekly, Sept. 8)

Rep. Kevin Brady (R-TX), chairman of the powerful tax-writing House Ways and Means Committee and a member of the “Big Six,” will engage Roundtable members on tax reform issues during next week’s Fall Roundtable Meeting in Washington. 

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