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December 17, 2010

TAX POLICY
Obama Signs Tax-Cut-and-Stimulus Package into Law; Measure Includes Real Estate-Backed Provisions on Leasehold Improvement, Brownfields, Bonus Depreciation

CAPITAL & CREDIT POLICY
Incoming House Financial Services Chairman Presses Regulators to Exempt Derivatives End-Users from Costly New Margin Requirements


TAX POLICY

Obama Signs Tax-Cut-and-Stimulus Package into Law; Measure Includes Real Estate-Backed Provisions on Leasehold Improvement, Brownfields, Bonus Depreciation

With just 14 days before the Bush tax cuts were due to expire, President Obama this afternoon signed the $859 billion tax-cut-and-stimulus package that cleared the House late last night and the Senate earlier in the week. Before the final House vote of 277-148 clearing the measure to go to the White House, Democrats sought unsuccessfully to amend the package with less generous 2009 estate tax rates (45 percent rate/$3.5 million per person exemption).

Obama_signs_Tax_bill_Dec2010 

President Obama this afternoon signed the $859 billion tax-cut-and-stimulus package into law. 

The tax compromise, negotiated last week by Obama and Senate Republicans, will: 

extend the current tax law on income, capital gains and dividends for two years (until 2012);

reinstate and extend a number of business tax breaks for one year (through 2011), including real estate-backed provisions to provide for 15-year depreciation of leasehold improvements and same-year expensing of brownfields cleanup costs

provide immediate expensing of 100 percent of the costs of business assets whose depreciable life is less than 20 years (eligible assets include leasehold improvements); the provision applies to businesses of all sizes and to costs incurred after Sept. 8, 2010 and through Dec. 31, 2011

allow 50 percent of the costs of similar investments made in 2012 to be expensed, with the balance of costs recovered via depreciation

reduce Social Security payroll taxes by 2 percent for workers in 2011

protect millions of Americans from getting hit by the alternative minimum tax (AMT)

extend unemployment benefits for one year

As reported in GlobeSt.com, the tax characterization of carried interest is not changed by the legislation. “Job creation is what the economy needs and, as we have been saying for some time, the proposed carried interest tax hike was a job killer,” Real Estate Roundtable President and CEO Jeff DeBoer told GlobeSt.com. “We are pleased it has been set aside.”  

DeBoer 2010 Annual Podium 

 Real Estate Roundtable President and CEO Jeff DeBoer 

Looming questions about the tax code, the specter of considerable tax increases, and weak economic recovery have been compounding businesses’ reluctance to invest in new projects or expand their payrolls. Since jobs are key to driving business demand for commercial space — and lifting net operating income (NOI) and property values from their currently depressed levels — The Roundtable welcomes the tax package and is hopeful it will help spark more robust private-sector job creation.

“This breakthrough on taxes couldn’t be more welcome,” said DeBoer. “By offering some predictability on tax policy — albeit temporary — this new law will allow businesses to better calculate their future costs, giving many of them more confidence to proceed with hiring and expansion plans. By averting an across-the-board increase on all taxpayers — and even putting more money in their pockets with the payroll tax holiday — the legislation should also help prevent a new contraction in consumer spending,” he continued.

“Together with policies to help bring new equity into commercial real estate markets, an improved jobs picture will spur more transactions, stabilize commercial estate asset values more quickly, and allow our industry to resume its historically positive contributions to the national economy,” DeBoer concluded. 

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CAPITAL & CREDIT POLICY

Incoming House Financial Services Chairman Presses Regulators to Exempt Derivatives End-Users from Costly New Margin Requirements

Rep. Spencer Bachus (R-AL), who will take over the chairmanship of the House Financial Services Committee in January, wrote to top banking regulators yesterday urging them to exempt derivatives end-users from what he reportedly sees as overly burdensome and costly margin requirements under the new financial reform law (“Dodd-Frank”). Derivatives end-users are commercial entities (including real estate firms) that use low-cost, customized derivatives products to protect themselves from everyday business risks, such as interest rate spikes. This allows them to better manage development and operational costs as well as their balance sheets.  

 Spencer_Bachus_AL 

 Rep. Spencer Bachus (R-AL)  

In his Dec. 16 letter to Securities and Exchange Commission (SEC) Chairman Mary Shapiro, Commodities Futures Trading Commission (CFTC) Chairman Gary Gensler, Treasury Secretary Timothy Geithner and Federal Reserve Board Chairman Ben Bernanke, Bachus warned that the new higher margin requirements would force end-users to move “billions of dollars in capital onto the sidelines to comply” (BNA Daily Report for Executives, Dec. 17).

As part of the hundreds of regulations needed to implement the new financial reform law, the SEC and CFTC are planning to propose all derivatives-related regulations by Dec. 31, and hope to finalize them by mid-2011.

Although the Dodd-Frank statute includes strict capital and margin requirements for custom derivatives contracts, it gives regulators final say over which entities must meet the new requirements.

Separately, a group of Senate lawmakers has proposed amending Dodd-Frank to restore earlier language clarifying that business end users are exempt from the new margin requirements. The proposed amendment is sponsored by Senators Vitter, Crapo, Chambliss, Enzi, and Corker.

In a Dec. 3 letter of support for the proposed amendment, the Coalition for Derivatives End Users stated that the original authors of the law’s margin provisions had never intended for the new margin requirements to apply to business end users [Roundtable Weekly, Dec. 10] Among these original authors was outgoing House Financial Services Committee Chair Barney Frank (D-MA), who stated earlier this year, “The margin requirements are not on end-users.”

Unfortunately, the language clarifying this intention was ultimately lost during legislative proceedings on the massive financial regulatory reform package.

The Coalition for Derivatives End Users includes over 270 organizations representing a variety of industries, including The Real Estate Roundtable.  

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For questions about content/editorial matters, please contact The Roundtable's Xenia Jowyk at xjowyk@rer.org or (202) 639-8400. For layout or email delivery issues, contact RER's Scott Sherwood at rweekly@rer.org or (202) 639-8400.

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