Senate Democrats Win Passage of Obama’s Bill to Extend Only “Middle-Class” Tax Cuts (up to $250K); Focus Now Turns to House  

The fate of the expiring Bush tax cuts — at least for 2013 — was on center stage in the Senate on Wednesday, with Democrats narrowly (and unexpectedly) winning passage of President Obama’s plan to extend the tax cuts for family incomes up to $250,000, and Republicans losing their bid to extend the tax cuts across all income levels.

The  fate of the expiring Bush tax cuts — at least for 2013 — was on center stage in the Senate this week. The focus now turns to the House.

Although the GOP bill had little chance of clearing the Senate and although the Democratic bill would almost certainly fail in the House, both parties used this week’s votes to send election-year messages on tax rates and to display party unity, The Hill reported July 25.

The Democratic measure, which won by a margin of 51-48, would continue a number of targeted tax provisions that Democrats say will help the middle class, while allowing the top tax rate on rate on capital gains and dividends to increase. The measure also would allow the current estate tax parameters to expire, so that the current $5.12 million per person exclusion would shrink to $1 million in 2013, and the top estate tax rate would rise from the current 35 percent to the (pre-2001) rate of 55 percent.

Republicans, who agreed to a straight up-or-down vote on the two bills (requiring a simple majority vs. the 60 votes usually needed for passage), secured only 45 votes for their plan. GOP Senators Susan Collins (ME) and Scott Brown (MA) voted against both plans, while Democratic Sen. Mark Pryor (AR) voted for the two proposals.

The focus now turns to the House, which will hold a vote next week on GOP legislation to extend the 2001 and 2003 tax cuts for all taxpayers; extend current estate tax parameters for an additional year; and provide a two-year AMT patch (covering 2012 and 2013). House Ways and Means Committee Chairman Dave Camp (R-MI), the chief sponsor of the “Job Protection and Recession Prevention Act of 2012” (H.R. 8), framed his bill as a “bridge to tax reform in 2013.”  

House Ways and Means Committee Chairman Dave Camp (R-MI)

Camp (and House Rules Committee Chair David Dreier, R-CA) this week also introduced legislation (H.R. 6169) that seeks to expedite tax code restructuring in 2013. The bill, which the House is expected to vote on next week, would require the chairman of the House Ways and Means Committee to introduce a tax reform bill by April 30, 2013. 

According to Bloomberg/BNA Daily Report for Executives, July 24, the chairman’s tax restructuring bill would have to:

• consolidate the existing six individual tax brackets into no more than two brackets (10 percent and up to 25 percent);

• reduce the corporate tax rate to 25 percent (or less); 

• repeal the AMT;

• broaden the tax base;

• change the tax treatment of U.S. multinational corporations to a territorial tax system, whereby they would only pay U.S. tax on income earned domestically (overseas income would no longer be subject to U.S. taxes but could be taxed in the country where it was earned)

Many Businesses Forego Tax Deductions Due to Complexity, WSJ Reports

A Wall Street Journal report on Monday cited bipartisan concerns about the tax code’s complexity, noting a PricewaterHouse Coopers/World Bank study in which the U.S. was ranked 142nd out of 183 countries in terms of the time it takes a hypothetical small manufacturer to calculate its corporate income tax.

USAA Managing Director Brenna Walraven, right, who is active on The Roundtable’s Sustainability Policy Advisory Committee (SPAC), with Roundtable Vice President and Council Duane Desiderio.

The July 23 article also discussed the difficulty many small and medium-size companies face as they try to claim some of the many tax credits and deductions in the code — such as the Section 179D tax deduction available to commercial property owners who make energy-efficiency investments in their buildings.

USAA Managing Director Brenna Walraven, who is active on The Roundtable’s Sustainability Policy Advisory Committee (SPAC), told the Journal that USAA had tried repeatedly to identify energy retrofit projects that could be supported by use of the federal deduction, but consistently found the costs of compliance to outweigh the benefits. “In every case we modeled, [the benefit] was less than the $50,000 to $60,000 [that it would cost for computer modeling]…. In the last six months, we haven’t even thought about it,” she said.

The Roundtable continues working to sensitize U.S. policymakers to real estate’s concerns, including persistently high unemployment, which is undermining a broader recovery in commercial real estate; the prospect of significantly higher taxes on millions of pass-through entities (including many in commercial real estate, whose firms are structured as partnerships, LLCs and S corporations); and the prospect of potentially significant economic destabilization due to anticipated tax code restructuring next year.

A study released by Ernst & Young last week found that over 2 million small business owners would be affected by the expiration of Bush-era tax cuts on Dec. 31, primarily those whose firms are structured as pass-through entities, such as partnerships, LLCs and S corporations (The Washington Post, July 18). The study also projected that higher taxes on small business owners could cost the United States some $200 billion in economic output and 710,000 jobs. 

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With Federal “Holdover” Tenancies on the Rise, Roundtable to Seek Input from Affected Members About Their Firms’ Experiences with GSA  

Real Estate Roundtable members are expressing growing concern with the largest commercial office tenant in the country — the federal government — regarding a rise in “holdover” tenancies. The U.S. General Services Administration (GSA), which manages the U.S. buildings portfolio and negotiates leases on behalf of its federal agency clients, is reportedly backlogged on decisions as to whether leases that are near expiration should be terminated or renewed. GSA inaction on imminent federal commercial leasing needs can have major ramifications for the real estate market in the national capital region and other areas with a significant GSA footprint. 

GSA’s default position as a holdover can freeze the ability of private sector landlords to re-position their assets and market their properties to prospective new tenants.

When a tenant — in this instance the GSA — continues to occupy its leased premises after the term has ended, it is said to “hold over.” GSA’s default position as a holdover can freeze the ability of private sector landlords to re-position their assets and market their properties to prospective new tenants. Federal leasing uncertainties may also place building owners in precarious situations with their lenders.

Roundtable President and CEO Jeffrey D. DeBoer raised the issue of GSA holdovers in Senate Energy Committee testimony last month, asserting that an unreliable federal leasing process can impede capital improvements and investments in buildings (including investments in energy efficiency retrofits), which in turn can dampen job growth. (Roundtable Weekly, June 29)  

Recent shake-ups at GSA on the executive level (Roundtable Weekly, April 6) may, at least partially, explain the rise in federal holdover tenancies. A recent report by the nonpartisan U.S. Government Accountability Office (GAO) further reveals inefficiencies in the federal property management process, as the GSA has been brought to task for not following sound data collection practices describing the nature, use, and extent of excess and underutilized federal real estate assets.

To gain a better understanding of the nature and extent of the holdover tenancy problem, The Roundtable next week will circulate a questionnaire to its members asking for feedback on their experiences in dealing with GSA. This information will help The Roundtable better present its case to officials on Capitol Hill and within the Administration, with the goal of developing policy solutions for a more efficient, workable GSA leasing process. Roundtable members who wish to share their GSA-related experiences can also email Roundtable Vice President and Counsel Duane Desiderio or call (202) 639-8400.  

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Voting Along Party Lines, House Approves Legislation to Halt All Major Federal Regulations Until Unemployment Falls to 6 Percent; White House Issues Veto Threat  

Seeking to reduce regulatory compliance burdens on small business and create an environment for job growth, House Republicans yesterday pushed through a regulatory moratorium bill that would freeze all major federal regulations until the unemployment rate falls to 6 percent or less.

Seeking to reduce regulatory compliance burdens on small business and create an environment for job growth, House Republicans pushed through a regulatory moratorium bill that would freeze all major federal regulations.

The “Red Tape Reduction and Small Business Job Creation Act,” which is virtually certain to die in the Democratic-controlled Senate and which faces a White House veto threat, also would bar outgoing presidents from issuing “midnight regulations” in the final months of their presidencies. Additionally, it seeks to curtail “sue-and-settle” lawsuits used by environmental groups to strengthen environmental rules in court or force agencies to expedite long-delayed regulations (Fox News, July 26).  The moratorium would allow for certain emergency regulations, but even those could be challenged in court.

During two days of debate, the chamber approved all GOP amendments (generally focused on broadening the bill’s scope and imposing additional restrictions on federal agencies), and rejected all Democratic proposals, which generally sought to create exemptions for public health, safety and environmental rules (Bloomberg/BNA, July 27). 

Under the final version, a regulation is considered major (significant enough to be halted) if it carries an annual projected economic cost of $50 million or more. The threshold was originally $100 million, but was lowered through a GOP amendment during floor deliberations.

The bill reportedly represents a significant broadening of GOP attempts to rein in federal regulations, since it doesn’t just target specific rules but would affect proposed rules across the board, and rivals the scope of a bill passed last December that would authorize Congress to approve any major regulation from the executive branch (Bloomberg/Business Week, July 26).

The Obama Administration issued a veto threat against the measure.

The Obama Administration, which has issued a veto threat, said in a statement that the measure would undermine critical public health and safety protections, introduce uncertainty in government decision-making, and interfere with the implementation of laws enacted by Congress. The president in January 2011 issued a sweeping executive order directing federal agencies to systematically review existing and new federal rules to ensure “cost-effective, evidenced-based regulations are compatible with economic growth, job creation, and competitiveness.” However, Republicans have dismissed these efforts as inadequate.

A report issued in early 2011 by House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) — based on nearly 2,000 pages of letters from business groups — asserted that federal regulations are harming U.S. competitiveness and contributing to unemployment, especially in the manufacturing sector (Daily Caller, Feb. 9). The report cited numerous regulations with direct implications for real estate, including hundreds of rulemakings stemming from the Dodd-Frank Act; EPA proposals that could require retrofits of existing properties to control precipitation runoff; and EPA efforts to regulate possible lead paint hazards that may arise from renovating commercial buildings. 

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