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October 6, 2017

FALL 2017 ROUNDTABLE POLICY MEETING
Top Congressional Tax-Writers and Key Policymakers Discuss Tax Reform, Economic Growth, and Industry Priorities with Roundtable Members

TAX & BUDGET POLICY
Budget Resolutions Move Forward as GOP Lawmakers Seek Legislative Path for Tax Reform; Treasury Announces Changes to Tax Regulations

ENVIRONMENAL POLICY
EPA Launches “Smart Sectors” Program; Sector-Based Regulatory Collaboration Includes The Real Estate Roundtable

MONETARY POLICY
Senate Confirms Randal Quarles as Federal Reserve’s Vice Chairman for Supervision


FALL 2017 ROUNDTABLE POLICY MEETING

Top Congressional Tax-Writers and Key Policymakers Discuss Tax Reform, Economic Growth, and Industry Priorities with Roundtable Members   

House Ways and Means Committee Chairman Kevin Brady (R-TX), Tax Policy Subcommittee Chairman Peter Roskam (R-IL) and other lawmakers engaged Real Estate Roundtable members on Tuesday during the organization’s Fall 2017 Meeting in Washington DC, where major topics of discussion included the recently released “Unified Framework” for Tax Reform, homeland security, environmental issues and capital markets.

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Left to Right: Roundtable President and CEO Jeffrey DeBoer,  American Hotel & Lodging Association President and CEO Katherine Lugar, and Roundtable Chairman William C. Rudin ( Rudin Management Company, Inc .)

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Roundtable Chairman William C. Rudin (Rudin Management Company, Inc.) kicked off the meeting with a report that included what lay ahead for GOP tax reform efforts, which could impact several top Roundtable policy priorities that have major implications for U.S. real estate.  To illustrate those issues and concerns, a video compilation was shown of Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer testifying on Sept. 19 before the Senate Finance Committee on business tax reform. 

DeBoer followed the video with a briefing for attendees on how the industry is working on the policy front in Washington in tandem with its 17 national real estate organization partners and policy advisory committees on a wide range of issues.

Roundtable members also heard from Katherine Lugar, president and chief executive officer of the American Hotel & Lodging Association (AHLA), the largest trade association representing the U.S. lodging industry.  Lugar briefed the Fall Meeting participants on a drop in foreign travel to the United States and the economic ramifications if that trend continues.  AHLA supports policy initiatives such as the visa waiver program to strengthen business and leisure travel – as well as the H-2B program to provide valuable support for businesses looking to supplement their workforce with temporary seasonal employees when no American workers are available.

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House Ways and Means Committee Chairman Kevin Brady (R-TX), right, Tax Policy Subcommittee Chairman Peter Roskam (R-IL), left, and other lawmakers engaged Real Estate Roundtable members during the organization’s Fall 2017 Meeting in Washington DC.

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The Roundtable’s business meeting featured the following speakers:

• House Ways and Means Committee Chairman Kevin Brady (R-TX) 
 
• Ways and Means Tax Policy Subcommittee Chairman Peter Roskam (R-IL)

• Senate Finance Committee Member Ben Cardin (D-MD)  

• JPMorgan Chase CEO Jamie Dimon 

• Former Director of National Intelligence James Clapper  

Chairman Brady addressed the timeline for tax reform and its importance to the economy.  He thanked The Roundtable for its constructive approach to the tax reform debate and for evaluating the impact of the House tax reform blueprint in its entirety, rather than isolating individual provisions.  The Chairman indicated that he and his Members were listening closely to Roundtable concerns and that the new unified framework reflects the input provided by Roundtable members.  Rep. Brady emphasized expensing, business interest deductibility, pass-through reform, and like-kind exchanges as areas where Roundtable input was having a meaningful impact on Republicans’ evolving tax plan. 

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Senate Finance Committee Member Ben Cardin (D-MD)shared Senate Democrats’ perspective, including their principal concerns related to the distributional impact of tax reform.  

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Prior proposals to fully repeal the deductibility of business interest and to replace depreciation rules with the immediate expensing of real estate are not included in the new framework.  However, potential partial restrictions on business interest deductibility and positive changes to real estate cost recovery, as well as other changes to the taxation of commercial real estate, remain under consideration.

Rep. Brady highlighted how recent meetings and technical comments from The Roundtable’s tax policy advisory committee are helping drafters work through the difficult task of designing a reduced tax rate on pass-through business income.   He urged Roundtable members to stay at the table and continue providing valuable feedback on tax reform details.  

House Ways and Means Tax Policy Subcommittee Chairman Roskam shared his insight on the state of the tax reform debate in the House.  He emphasized the broad support the framework received at the House GOP retreat last week and discussed the potential for further changes to key elements of the plan, such as the state and local tax deduction.

JPMorgan Chase CEO Jaime Dimon focused his remarks on the underlying strength of the U.S. economy but emphasized the need for action in Washington on tax reform, infrastructure, and additional regulatory relief.  He expressed support for lowering the tax rate on corporations and pass-through businesses, and indicated the current economic expansion could continue well into the future.  

Speaking later in the day, Senator Cardin shared Senate Democrats’ perspective, including their principal concerns related to the distributional impact of tax reform, its impact on the federal deficit, and the need for tax reform to go through regular order in the Senate.  He also described his preferred approach, which would establish a progressive, value-added tax and use the additional revenue to reduce the income tax burden on individuals and corporations. 

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Approximately 30 additional policymakers attended a reception and dinner that evening at the Newseum. 

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As the Trump Administration and Republican Congress unified behind the Sept. 27 release of the Tax Reform Framework, House and Senate tax committees now face the challenge of transforming the 9-page framework document into legislation, which they hope can be enacted by the end of the year. (Roundtable Weekly, Sept. 29 and 1-page summary of the Framework)

After the business meeting, approximately 30 additional policymakers attended a reception and dinner that evening at the Newseum, where real estate CEOs and trade association leaders discussed policy issues with the lawmakers in an informal setting.

Next on The Roundtable’s calendar is the all-member State of the Industry Meeting on January 24-25 at in Washington, DC, which will also include policy advisory committee meetings.  More details will be forthcoming for all Real Estate Roundtable members.

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TAX & BUDGET POLICY

Budget Resolutions Move Forward as GOP Lawmakers Seek Legislative Path for Tax Reform; Treasury Announces Changes to Tax Regulations

House and Senate Republicans this week advanced budget resolutions for 2018 – another critical step toward a fast-track budget process called reconciliation, which could be used to pass a tax reform bill in the Senate with a simple majority.  (The Hill, Oct 5).

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  The release of the 9-page “Unified Framework for Fixing Our Broken Tax Code” by GOP policymakers is summarized in a 1-page document about the Framework, above.

The House passed its budget resolution yesterday by a vote of 219-206, followed by the Senate Budget Committee’s approval of a draft fiscal 2018 resolution on a 12-11 party-line vote.  The Roundtable on Sept. 28 joined a coalition of more than 240 organizations in urging Congress to pass a budget resolution with reconciliation instructions to make way for tax reform.

The White House issued a statement praising the House vote as “a pathway to fix our rigged and burdensome tax code.”  House Ways and Means Committee Chairman Kevin Brady (R-TX) called it “another big day for tax reform.”  (BNA, Oct. 5)

The full Senate is expected to vote on the budget resolution in the next two weeks, followed by a formal conference committee or informal negotiations to reconcile the two chambers’ budgets.  By using the reconciliation process in a Senate with 52 Republican members, the GOP can only afford to lose two votes to adopt a budget. (CQ, Oct 5)  

The GOP tax reform framework released Sept. 27 proposes significant reductions in business and individual taxes, yet leaves important details to House and Senate tax committees to develop.  To pay for proposed tax cuts, significant questions remain on revenue raisers, including the repeal of state and local tax deductions.  (Roundtable Weekly, Sept 29)

The House is expected to unveil its tax bill after a conference committee agrees to and passes a budget. The Senate hopes to release its tax bill by Nov. 13 with the goal of sending it to the president's desk by the end of this year.  (BNA, Oct 5)

Treasury Releases Second Report on Tax Regulatory Burdens

The Treasury Department on Oct. 4 released its “Second Report to the President on Identifying and Reducing Tax Regulatory Burdens.” Originally mandated in April by a White House executive order, the report is a step in President Donald Trump's campaign against federal regulations.

The April 21 White House executive order on Identifying and Reducing Tax Regulatory Burdens directed the Treasury Department to examine “significant” regulations issued in 2016 and identify those that pose an undue burden on taxpayers, add undue complexity to Federal tax laws, or exceed the statutory authority of the Internal Revenue Service.  (Roundtable Weekly, April 21).

The first report was issued by Treasury on June 22 as Notice 2017-38, in which Treasury identified eight regulations for review.

Of the eight sets of tax regulations listed in the Treasury notice, five are of importance to real estate:

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The Treasury Department on Oct. 4 released its “ Second Report to the President on Identifying and Reducing Tax Regulatory Burdens .”

    1. Proposed regulations related to family business estate tax valuation discounts (section 2704);

    2. Proposed and final regulations related to partnership liability allocation rules and bottom dollar guarantees (section 752);

    3. REIT spin-off regulations under the PATH Act;

    4. Final cross-border debt-equity regulations (section 385);

    5. Proposed regulations altering the definition of a political subdivision for purposes of tax-exempt bonds (section 103).

The Roundtable submitted formal responses to the Treasury announcement with the assistance of members on its Tax Policy Advisory Committee (TPAC), chaired by Frank Creamer (FGC Advisors, L.L.C.).  An economic study cosponsored by The Roundtable and submitted to the Treasury Department in July found that the proposed estate tax regulations would hurt family-owned real estate businesses and reduce economic activity. 

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The Roundtable submitted formal responses to the Treasury announcement with the assistance of members on its Tax Policy Advisory Committee (TPAC), chaired by Frank Creamer (FGC Advisors, L.L.C.).  

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Treasury and the IRS recommend to be withdrawn in their entirety:

• Proposed regulations under section 2704 on restrictions on liquidation of an interest for estate, gift, and generation-skipping transfer taxes.

• Proposed regulations under section 103 on the definition of a “political subdivision.”

Treasury and the IRS are considering revoking in part:

• Regulations under section 385 on the treatment of certain interests in corporations as stock or indebtedness

• Regulations under section 707 and section 752 regarding the treatment of partnership liabilities.

Treasury and the IRS are considering substantially revising:

• Temporary regulations under section 337(d) on certain transfers of property to regulated investment companies (RICs) and real estate investment trusts (REITs).

As part of the regulatory review process, the IRS has already identified more than 200 regulations for potential revocation, most of which have been outstanding for many years. Treasury and the IRS expect to begin the rulemaking process for revoking these regulations in the fourth quarter of 2017.  (Steptoe & Johnson, Oct 4)

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ENVIRONMENAL POLICY

EPA Launches “Smart Sectors” Program; Sector-Based Regulatory Collaboration Includes The Real Estate Roundtable

The U.S. Environmental Protection Agency (EPA) on Tuesday launched “Smart Sectors” – a new partnership program between the agency and 13 various industry sectors aimed at achieving better environmental outcomes that help grow the economy and create jobs. The Roundtable was invited to participate as a representative of the “Construction” sector.  (EPA, Oct. 3)

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During The Roundtable's Fall 2017 Meeting in Washington, Tony Malkin (Chairman and CEO, Empire State Realty Trust ) engaged attendees in a discussion on EPA’s Smart Sectors and the agency’s growing “ ENERGY STAR for Tenants ” programs.

EPA Administrator Scott Pruitt explained the Trump Administration’s objective in collaborating with the business community.  “When industries and regulators better understand each other, the economy, public, and the environment all benefit.  The Smart Sectors program is designed to effectively engage business partners throughout the regulatory process,” he said.
 
“The real estate industry’s leaders are committed to sustainable building management and construction practices that tie directly to their business mission,” said Jeffrey D. DeBoer, president and CEO of The Real Estate Roundtable in EPA’s press release announcing the initiative.  “We look forward to participating in EPA’s Smart Sectors program to share our industry’s perspectives on how responsible, measurable environmental stewardship can help create jobs, strengthen our economy, spur innovation, and enhance lasting value for our communities.” 
 
On the same day EPA launched the program, The Roundtable held its Fall 2017 Meeting in Washington, where Tony Malkin (Chairman and CEO, Empire State Realty Trust) engaged attendees in a discussion on EPA’s Smart Sectors and the agency’s growing “ENERGY STAR for Tenants” program.  Malkin chairs The Roundtable’s Sustainability Policy Advisory Committee (SPAC), which was a key player in the creation and ongoing development of EPA’s charter tenant labeling program of high performance leased office spaces.  (Roundtable Weekly, June 30, 2017)
 
In addition to “construction,” other industries identified to participate in Smart Sectors include aerospace, agriculture, chemical manufacturing,  electronics, oil and gas, and utilities.  As a participant in the program, The Roundtable intends to continue its advocacy in support of EPA’s successful ENERGY STAR buildings platform – while identifying areas of possible regulatory overreach on owners and developers such as unsubstantiated lead paint hazards in commercial buildings, and federal regulation of ordinary storm ditches and drains through the controversial “waters of the U.S.” rule.  (Roundtable Weekly, May 19, 2017)
 
For more information, please consult EPA’s fact sheet on the Smart Sectors program.  

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MONETARY POLICY

Senate Confirms Randal Quarles as Federal Reserve’s Vice Chairman for Supervision  

On Thursday, the Senate confirmed Randal K. Quarles as the Federal Reserve’s vice chairman for supervision, a position that will give him vital input into efforts to rollback regulatory excesses of the 2010 Dodd-Frank Act.  While the measure was aimed at preventing a repeat of the 2008 financial crisis, Trump administration officials have said it is stunting growth. (Washington Post, Oct. 5)

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The Senate confirmed Randal K. Quarles as the Federal Reserve’s vice chairman for supervision

The vote to confirm Mr. Quarles to the Fed board was 65-32, reflecting substantial bipartisan support.  He will still need Senate confirmation for a full 14-year board term that would start next year.

With Fed Vice Chairman Stanley Fischer stepping down next week and Fed Chair Janet Yellen’s current term expiring in February 2018, Mr. Quarles is the first central bank member President Donald Trump will nominate for vacant seats in the coming months.

Mr. Quarles is the first person to officially hold the position of vice chairman, which was created after the 2008 financial crisis to aid the Fed’s focus on financial stability and regulation. (New York Times, Oct 5.)

As vice chairman, Quarles will have extensive influence over the industry’s capital and liquidity, as well as enforcement of Dodd-Frank Act measures including the Volcker Rule. As a governor, he’ll also serve on the Federal Open Market Committee. (Bloomberg, Oct. 5)

Mr. Quarles is a lawyer who worked in the financial industry before serving as a Treasury Department official during President George W. Bush’s administration. After leaving public service in 2006, he became a partner at the Carlyle Group and then helped found the Cynosure Group, a private equity firm based in Salt Lake City, Utah.

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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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