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May 19, 2017

TAX REFORM
House Ways and Means Begin Hearings on Tax Overhaul; Senate Bill Introduced on Business Capital Expensing

CAPITAL & CREDIT
Treasury Secretary Mnuchin Testifies on Tax, Regulatory and GSE Reform; Kick-Starts Agencies’ Review of The Volcker Rule

INFRASTRUCTURE
Congress, Stakeholders Lay Foundation for Expected White House Infrastructure Proposal

ENERGY AND ENVIRONMENTAL
Real Estate Coalition Urges Regulatory Relief from EPA Overreach, While Pointing to CRE’s Voluntary ENERGY STAR Successes


TAX REFORM

House Ways and Means Begin Hearings on Tax Overhaul; Senate Bill Introduced on Business Capital Expensing   

In the first of a series of hearings on tax reform held yesterday, House Ways and Means Committee Chairman Kevin Brady (R-TX) and five business executives who testified on economic growth and job creation agreed on the need for permanent tax reform that will not add to the deficit.  Such a revenue-neutral plan would offset a reduction in tax rates with the elimination of certain tax deductions or credits.

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In the first of a series of hearings on tax reform held yesterday, House Ways and Means Committee Chairman Kevin Brady (R-TX) and five business executives who testified on economic growth and job creation agreed on the need for permanent tax reform that will not add to the deficit.

Chairman Brady said in his opening statement: “Currently, we have the highest corporate tax rate in the developed world at 35%. For small businesses, the rates can be as high as 44.6%.  To unleash job creation and increase paychecks, we know these rates must come down. In addition to lowering rates, we also know that bold policies such as full and immediate expensing are incredibly pro-growth for jobs, paychecks, and our economy as a whole.”

Debate among committee members focused on the details of what would comprise such a tax reform bill, as Republicans continue to search for a unified plan between the House, Senate and White House. One issue of contention is a proposed border adjustability tax (BAT), which would tax U.S. imports while exempting exports from taxation. The BAT will be a focus of a Ways and Means Committee hearing on May 23 on “Increasing U.S. Competitiveness and Preventing American Jobs from Moving Overseas.” (Roundtable Weekly, May 5)

Several congressional leaders have recently expressed skepticism that comprehensive tax reform legislation can be produced this year, with Senate Majority Leader Mitch McConnell stating on Tuesday that a focus on tax cuts “this Congress” is more likely than an overhaul of the code.  (New York Times, May 17)

Referring to completing tax legislation this year, McConnell said, “I’m confident we can get it done,” he said. “I’m not going to put a deadline on it.” (Blooomberg, May 16)

During a Senate Banking Committee hearing yesterday (see story below), Treasury Secretary Steven Mnuchin sought to clarify part of the White House’s tax plan, explaining that not all businesses currently classified as pass-through entities would receive a reduction in tax rates to 15 percent – an indication that hedge funds and other high-earning partnerships and limited liability companies might not get major breaks.  Mnuchin added that there would be procedures in place to ensure small- and medium-sized businesses would qualify for a lower rate.  (BNA, May18)

The White House will unveil President Trump’s first full budget for the 2018 fiscal year on Tuesday, which will spark further debate on tax cuts and spending targets.

The Roundtable is preparing comments to be submitted next week to congressional taxwriters on how to restructure our Nation’s tax laws to unleash entrepreneurship, capital formation, and job creation.

Senate Bill on Expensing Introduced

A bill introduced by Senate Finance Committee member John Thune (R-SD) on May 17 would allow equipment and property to be written off immediately, up to $2 million — an incentive that could advance energy efficient build-outs in new buildings and tenant improvements in existing structures. (BNA, May 18)

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Senate Finance Committee member John Thune (R-SD)

By accelerating cost recovery on property, equipment, inventory, and other common business investments, the INVEST Act (S. 1144) would encourage new business growth and help existing businesses expand their operations, create new jobs and grow the economy. 

The INVEST Act includes a provision that would  allow investments in business equipment and property to be written off immediately up to $2 million under Section 179 and start phasing out the benefit for investments over $3 million. Expensing would also apply to a broader range of property and equipment, including roofs, HVAC units, and property used in rental real estate.

The bill would also authorize Treasury to adjust depreciation schedules to more closely reflect the actual useful lives of assets.

While introduced as a standalone bill, The INVEST Act is intended to be included within broader tax reform legislation in the Senate. (Thune News Release, May 17)

Download a full topline summary of the INVEST Act, or a section-by-section summary of the bill, or the legislative text

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CAPITAL & CREDIT

Treasury Secretary Mnuchin Testifies on Tax, Regulatory and GSE Reform; Kick-Starts Agencies’ Review of The Volcker Rule   

Treasury Secretary Mnuchin believes “a goal of 3% GDP or higher economic growth is achievable if we make historic reforms to both taxes and regulation,” according to testimony he offered yesterday before the Senate Banking, Housing and Urban Affairs Committee during the hearing “Domestic and International Policy Update.”  (video webcast)

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Treasury Secretary Mnuchin believes “a goal of 3% GDP or higher economic growth is achievable if we make historic reforms to both taxes and regulation,” according to testimony he offered yesterday before the Senate Banking, Housing and Urban Affairs Committee during the hearing “ Domestic and International Policy Update.”  (video webcast) .  

Secretary Mnuchin also told the Senate panel there are approximately 100 people working at the Treasury on the issue of tax reform “to bring meaningful relief to middle income Americans and make American businesses competitive.”  

On regulatory reform, he informed the committee that Treasury is preparing a report for the Trump Administration on the U.S. financial system that, “… will contain recommendations to provide relief for community banks and make regulations more efficient, effective and appropriately tailored.”

Specific recommendations that Secretary Mnuchin plans to make to President Trump next month would call for exempting all banks with less than $10 billion in assets from the 2010 Dodd-Frank law — and raising the $50 billion asset threshold that automatically triggers tighter regulatory oversight of many regional banks, although he did not specify what the new threshold amount may be.  (Washington Post, May 18)

In a contentious exchange with committee member Elizabeth Warren (D-MA), Mnuchin said that the Trump administration does not support a full separation between investment and commercial banking under the Glass-Steagall Act, explaining that the original concern leading to the 1933 law was related to conflicts, not credit risks.  Emphasizing that the administration is in favor of a “21st Century Glass-Steagall,” Mnuchin said the phrase does not mean severing today’s commercial and investment bank activities, which would have an “enormous impact” on lending and liquidity. (Morning Consult, May 18)

Committee Chairman Mike Crapo (R-ID) said he looked forward to working with the Treasury on numerous financial regulatory reforms, including housing finance.  Referring to the committee’s hearing last week on Government-Sponsored-Entities Fannie Mae and Freddie Mac, Sen. Crapo said “[it] reinforced why conservatorship is unsustainable. Namely, GSEs having zero capital, taxpayers on the hook for losses, and the government effectively taking all of the risks.”  (Sen. Crapo statement, May 18 and Roundtable Weekly, May12)

Secretary Mnuchin responded, “Housing finance reform is another priority of mine.  This has been an unresolved issue for far too long and one we are committed to fixing. We will ensure that there is both ample credit for housing and that we do not put taxpayers at risk.”

Roundtable members will discuss a wide range of financial regulatory issues with Secretary Mnuchin during the Roundtable’s June 13 Annual Meeting in Washington.

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The Treasury Secretary on May 8 established a regulatory working group consisting of agencies that oversee banks and securities firms to “assess the efficacy” of the Volcker Rule.

Regulatory Agencies’ Directed to Review The Volcker Rule

Bloomberg reports that the Treasury Secretary on May 8 established a regulatory working group consisting of agencies that oversee banks and securities firms to “assess the efficacy” of the Volcker Rule — part of the Dodd-Frank law that bars proprietary trading by banks from making certain kinds of speculative investments.  Mnuchin's meeting last week with the Financial Stability Oversight Council (FSOC) resulted in a directive to five key agencies to re-examine what’s permitted under the Volcker Rule (Bloomberg, May 18)

The agencies who will review the rule are the same ones that wrote it: the Federal Reserve, Securities and Exchange Commission, Federal Deposit Insurance Corp., Commodity Futures Trading Commission and the Office of the Comptroller of the Currency.

Legislation in the House would offer regulatory relief to banks from certain Dodd-Frank provisions including the Volcker Rule and Risk Retention in exchange for bolstering their capital levels. Although the Financial CHOICE Act (HR 10) passed the House Financial Services Committee on May 4 by a party-line vote, when the legislation may advance toward the House floor for a vote is unsure. The Roundtable sent a letter on May 2 to Committee Chairman Jeb Hensarling (R-TX) in support of The Financial CHOICE Act.   (Roundtable Weekly, May 5).

The Volcker rule and monetary policy issues will be issues for discussion between Roundtable members and Treasury Secretary Steven Mnuchin and former Philadelphia Fed President and CEO Charles Plosser at The Roundtable’s Annual Meeting on June 13.

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INFRASTRUCTURE

Congress, Stakeholders Lay Foundation for Expected White House Infrastructure Proposal 

Anticipating an infrastructure proposal from the Trump administration soon, two Senate hearings held this week focused on the issue as a coalition of businesses and other stakeholders gathered for an “Infrastructure Week” event at the U.S. Chamber of Commerce in Washington.   

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written statement for the record of Wednesday’s Senate committee hearing  from Roundtable President and CEO Jeffrey DeBoer echoes Secretary Chao’s comments to encourage appropriate P3s as a means to help finance projects, while also encouraging policies to streamline the unnecessarily burdensome permitting process – which can take more than a decade to navigate for transportation project approvals.

Transportation Secretary Elaine Chao announced at the event on Monday that a forthcoming Trump Administration proposal will include 200 billion dollars in federal spending, which will “be used to leverage 1 trillion in infrastructure investment over the next 10 years.”  Secretary Chao added, “the administration will share its vision of what the infrastructure plan will look like in the next several weeks, which will kick off our collaboration with Congress.” (The Hill, May 15)

On Capitol Hill, a Tuesday hearing by a subcommittee of the Senate Committee on Environment & Public Works focused on “Leveraging Federal Funding: Innovative Solutions for Infrastructure.”  The following day, the full committee held a hearing that featured Secretary Chao testifying on “Improving America’s Transportation Infrastructure: The Road Forward.” 

Chao reiterated for the Senate panel that the Trump administration will ask for “direct federal funds … to leverage” up to 800 billion dollars in additional investment from the private sector, which would work local and state governments in public-private partnerships (P3s) on infrastructure improvements.

We understand that not every infrastructure project, however, is a candidate for private investment,” Chao told the committee. “The administration recognizes the difference between rural and urban infrastructure needs. We anticipate that the president’s proposal will reflect this understanding,” she said. (Detroit News, May 17)

In a podcast released Monday, Rep. Fred Upton (R-MI), who chairs the House Energy and Commerce Committee's Subcommittee, said an eventual infrastructure legislative package should also include resources for energy issues such as protection for the energy grid and nuclear plants from cyberattacks. (Center on Global Energy Policy, May 15).

The Roundtable submitted a written statement for the record of Wednesday’s Senate committee hearing.  The letter from Roundtable President and CEO Jeffrey DeBoer echoes Secretary Chao’s comments to encourage appropriate P3s as a means to help finance projects, while also encouraging policies to streamline the unnecessarily burdensome permitting process – which can take more than a decade to navigate for transportation project approvals.  “Real estate and infrastructure have a synergistic, two-way relationship as growth in one of these asset classes spurs growth in the other,” DeBoer’s letter explains. “Safe and reliable infrastructure enhances the value of those properties it serves—which in turn generates greater tax revenues that cycle into a stream that amplifies and leverages limited public dollars needed to fund infrastructure projects.”  (Roundtable letter, May 16)

DeBoer also recently participated in a Georgetown University policy discussion,  “Investing in a Time of Political Change,” and addressed the Trump Administration’s plans for  infrastructure investment and tax reform.  (Watch the video)

During The Roundtable’s April 5 Spring Meeting in Washington. Secretary Chao discussed infrastructure, P3s, and the need to streamline the government’s approval procedures.  (Roundtable Weekly, April 7, 2017) 

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ENERGY AND ENVIRONMENTAL

Real Estate Coalition Urges Regulatory Relief from EPA Overreach, While Pointing to CRE’s Voluntary ENERGY STAR Successes

As part of the Trump Administration’s broader efforts to reconsider agency rules and streamline the federal regulatory process, a coalition of real estate organizations on Monday urged the Environmental Protection Agency (EPA) to reassess regulations that can unduly burden commercial building renovations and land development—while expressing continued support for the voluntary, non-regulatory ENERGY STAR program. 

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The Roundtable joined ten other real estate groups — representing developers, builders, owners, managers, and brokers across residential and commercial asset classes — in the comment letter to EPA .

The Roundtable joined ten other real estate groups — representing developers, builders, owners, managers, and brokers across residential and commercial asset classes — in the comment letter to EPA.  As the agency evaluates its existing regulations and programs, the letter summarizes and re-states the real estate industry’s long-standing and unified recommendations as follows:

(1) EPA should halt efforts toward regulating renovation, repair and painting (“RRP”) activities in public and commercial buildings.   After considering this matter for many years, EPA has failed to make the requisite legal finding that routine property maintenance and RRP activities create lead-based paint hazards. (See Roundtable Weekly, July 11, 2014).  Absent such a statutorily required hazard finding, EPA lacks authority to regulate the commonplace renovations and painting projects that occur on a day-to-day basis throughout the nation’s stock of public and commercial buildings. 

“The possibility of unsubstantiated lead paint regulations should no longer loom over the real estate industry—especially where the agency can more strategically devote its limited resources to address pressing and demonstrable lead-related health crises like those affecting Flint, Michigan and other cities with aging drinking water infrastructure,” the letter states.  

(2) EPA should avoid “double regulations” and clarify that curbs, gutters and ditches owned by municipalities to treat and convey stormwater runoff are not waters of the U.S. (“WOTUS”).   The Clean Water Act already regulates these stormwater systems as “point sources” that require pollutant discharge permits.  Moreover, municipal storm sewer drains, ditches and pipes are covered by EPA’s long-standing rule that “waste treatment systems” are not WOTUS.  (Roundtable Weekly, May 29, 2015).

Deeming MS4s as “waters” can complicate the federal permit process for many land development and construction projects.  “To reduce regulatory burdens on cities, other municipalities, and property owners, EPA should revise its rule to state that MS4s and their component parts are ‘waste treatment systems’—which the agency has long excluded from WOTUS jurisdiction,” the letter states.

(3) EPA should continue funding and implementing the non-regulatory, market-driven ENERGY STAR program.   A strong jobs and business case supports EPA’s program to encourage voluntary “labels” that distinguish innovative, energy efficient buildings in the real estate marketplace.  ENERGY STAR-rated assets attract commercial tenants, appeal to investors, and save businesses billions of dollars each year on utility bills. 

Monday’s letter complements The Roundtable’s recent efforts with industry partners to urge Congressional appropriators to continue funding the ENERGY STAR program in the next fiscal year starting October 1 (over the Trump Administration’s recommendation to de-fund the program in FY’18).   (Roundtable Weekly, March 31.)  Emphasizing that 44 billion square feet – half the U.S. CRE market – rely on ENERGY STAR’s tools to measure and manage building energy use, the coalition again urged EPA to support its signature program that encourages optimal energy efficiency performance across real estate asset classes. 

The Roundtable will continue to provide comments to the Trump Administration and Congress as they consider how to best reform and streamline the federal regulatory process, while recommending market-driven platforms and standards developed through industry partnerships with government agencies.

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For questions about Roundtable Weekly, please contact The Roundtable's Scott Sherwood at rweekly@rer.org or (202) 639-8400.

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