TAX POLICY - September 7, 2018 - Roundtable Weekly

FIRPTA Repeal Bill Introduced; “Tax Reform 2.0” Mark-Up Next Week  

As House Republican leaders this week promoted a second round of tax cuts before the mid-term elections, Reps. Kenny Marchant (R-TX) and Joe Crowley (D-NY) introduced legislation yesterday to repeal the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). 

 FIRPTA RCG 2017 study x200

A recent report by the Rosen Consulting Group (RCG) estimated that FIRPTA repeal would generate an initial increase of between $65 billion and $125 billion in international investment in U.S. commercial real estate. 

  • FIRPTA subjects foreign investment in U.S. real property to a much higher tax burden than foreign investment in any other class of assets. As a result, overseas investors are often discouraged from investing in U.S. real estate.  FIRPTA effectively deters billions of dollars of capital that would strengthen U.S. infrastructure, expand the tax base and create much-needed domestic jobs.

  • The Marchant-Crowley Invest in America Act would build on FIRPTA reforms Congress passed in the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) by repealing FIRPTA altogether.  

  • The PATH Act exempted foreign pension funds from FIRPTA and increased the share of a publicly traded US REIT that a foreign investor can hold without triggering FIRPTA.  The PATH Act changes injected billions of dollars in foreign investment into the U.S. real estate market, and contributed to a spike in capital investment in many parts of the country.  (Roundtable Weekly – Oct 13, 2017)

  • A recent report by the Rosen Consulting Group (RCG) estimated that FIRPTA repeal would generate an initial increase of between $65 billion and $125 billion in international investment in U.S. commercial real estate. The report determined that repealing FIRPTA would generate between $26 and $49 billion in total economic activity — a boost of 10 to 30 basis points to U.S. GDP.  This new level of activity would lead to the creation of 147,000 to 284,000 jobs throughout the economy and increase taxpayers' income by $8 billion to $16 billion.  RCG's report concluded that repealing FIRPTA would not have a meaningful impact on the federal budget, as FIRPTA accounted for less than 0.002% of federal tax receipts from 2009 to 2013. (Unlocking Foreign Investment in U.S. Commercial Real Estate, July 2017)

  • FIRPTA reform is a long-standing goal of The Roundtable.  The economic benefits of a comprehensive FIRPTA repeal was a focus of testimony by Real Estate Roundtable President and CEO Jeffrey DeBoer before the U.S. Senate Finance Committee on Sept. 19, 2017.  (Roundtable Weekly

"In 2015, Congress passed the most significant reforms of FIRPTA since its passage in 1980.  Congress should build on the recent success by repealing FIRPTA outright as part of tax reform. Unleashed by FIRPTA's repeal, capital from abroad would create jobs by financing new real estate developments, as well as the upgrading and rehabilitation of existing buildings. Architects, engineers, construction firms, subcontractors, and others would be put to work building and improving commercial buildings and infrastructure," DeBoer testified.  (Roundtable Statement for the Record, Senate Finance Committee Sept 2017) 

Tax Reform 2.0

GOP leaders aiming to pass another round of tax reforms through the House before the November mid-term elections are planning next week to introduce "Tax Reform 2.0" legislation. The bill would make the individual tax cuts contained in President Donald Trump's December tax overhaul permanent, while expanding taxpayer savings opportunities. 

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House Ways and Means Committee Chairman Kevin Brady (R-TX) commented, "... next week we will introduce legislation to make permanent the small business and individual tax cuts that are driving these positive economic numbers. This investment into our workers will produce over a million and a half new jobs, continue to boost wages, and increase America's competitiveness for years to come."  (Accounting Today, Sept. 7)

 

  • Today, House Ways and Means Committee Chairman Kevin Brady (R-TX) commented on the 2.0 legislation expected to be marked up by his committee next week while reacting to the U.S. Bureau of Labor Statistics' August jobs report showing a gain of 201,000 jobs.

  • "August was another solid month of job growth, marking over 1.6 million jobs created this year and the highest level of wage gains since 2009. And we know we can do even better to continue creating greater financial security for our workers and Main Street businesses. That's why next week we will introduce legislation to make permanent the small business and individual tax cuts that are driving these positive economic numbers. This investment into our workers will produce over a million and a half new jobs, continue to boost wages, and increase America's competitiveness for years to come," Brady said.  (Accounting Today, Sept. 7)

  • In July, Brady released a two-page framework for "Tax Reform 2.0" that would make individual and small business tax cuts.  Although last December's Tax Cuts and Jobs Act made corporate tax cuts permanent, most provisions for individuals and pass-through businesses are set to expire at the end of 2025.  Yesterday, Ways and Means Committee Republicans released an updated outline of the Tax Cuts 2.0 package.

  • Bloomberg reported this week that House Majority Whip Steve Scalise stated, "We're not resting on our laurels. We're seeing this great economic growth, and so we're starting to put together tax cuts 2.0."  (Los Angeles Times, Sept. 5)

The central feature of the reform proposal — a permanent extension of tax cuts for individuals — is unlikely to pass the Senate, where it would need Democratic support (The Hill, July 24).  Additionally,  the introduction of a Tax Reform 2.0 bill may delay legislation addressing tax technical corrections until after the November elections. (Roundtable Weekly, July 20)

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