Roundtable Weekly
- Biden Administration Issues FY22 Budget with Tax Policy Details; Policymakers Face Deadline on Bipartisan Infrastructure Negotiations
- Congressional Briefing on Section 1031 Exchanges; ‘Stand with Cities’ Event Focuses on Economic Growth
- Senate Finance Committee Advances Energy Tax Bill with Enhanced Incentive for Energy Efficient Building “Retrofits”
- Commercial Real Estate Executives Report Improved Current Markets and Caution Ahead
Biden Administration Issues FY22 Budget with Tax Policy Details; Policymakers Face Deadline on Bipartisan Infrastructure Negotiations
The Biden Administration today issued its FY22 budget proposal, which serves as a benchmark of its tax policy priorities, accompanied by the Treasury Department’s “General Explanations of the Administration’s Revenue Proposals.” Meanwhile, negotiations continued this week between Senate Republicans and the White House on the scope and cost of President Biden’s multitrillion infrastructure investment proposal.
Budget Pay-fors
- The administration’s $6 trillion 2022 budget beginning Oct. 1 represents some of the highest levels of federal spending of the postwar era. The revenue portion of the proposal would sharply raise taxes on corporations and high-income households to fund President Biden’s infrastructure, climate change and social safety net goals. (BGov, White House Fact Sheet and budget appendix, May 28)
- Although Congress will eventually determine final legislation that controls the federal government’s annual spending, today’s White House budget influences the debate on how to pay for its proposed programs with a variety of taxes, including:
- An increase in the corporate tax rate to 28% from 21%;
- Nearly doubling the tax rate on long-term capital gains to 40.8% from 23.8%;
- Limiting capital gains treatment to invested cash and disregarding other forms of risk taken by partners;
- Limiting taxpayers’ ability to defer gain that is reinvested in property of a like-kind; and
- Making death a taxable event at far lower levels of income and potentially taxing the unrealized gain on appreciated assets not once but twice when an individual dies.
- An increase in the corporate tax rate to 28% from 21%;
- The administration’s proposed capital gains tax rate increase assumes it would be retroactive to April, preventing investors from quickly selling assets before the end of the year to avoid such a change. (Wall Street Journal, May 27)
- The Real Estate Roundtable, along with 16 other national real estate trade organizations, last week submitted detailed comments to the Senate Finance Committee and House Ways and Means Committee, which held hearings on how to fund recent Biden Administration infrastructure investment proposals. (Roundtable Weekly, May 21)
- The Roundtable plans to analyze the details of the White House budget proposal for its potential impact on CRE with its policy advisory committees and national real estate organization partners to remain engaged at all levels of the tax policy debate.
GOP Infrastructure Counteroffer

- Senate Republicans yesterday outlined a $928 billion infrastructure proposal over eight years as a counteroffer to Biden’s $1.7 trillion infrastructure initiative. The GOP proposal would repurpose funds from the $1.9 trillion pandemic relief law enacted in March, an approach rejected by Democrats. The Republican proposal also includes $257 billion in new spending for traditional “hard” infrastructure such as roads, bridges and other public works. (NPR / New York Times / AP, May 27)
- Democrats are weighing whether to advance the Biden infrastructure plan under the same “reconciliation” budget process that was used to pass the March pandemic relief package by a simple majority vote – thereby bypassing the 60-vote requirement typically needed to advance most legislation in the 50-50 Senate.
- President Biden yesterday referred to the infrastructure talks, stating, “We’re going to have to close this down soon.” He added that he plans to meet next week with Sen. Shelley Moore Capito (R-WV), above at podium, who has led Republican policymakers in infrastructure negotiations. (Bloomberg, May 27)
- Senate Majority Leader Chuck Schumer (D-NY) on May 25 said, “The bottom line is very simple, that it has always been our plan regardless of the vehicle to work on an infrastructure bill in July. And that’s our plan, to move forward in July.” (The Hill, May 28)
- Senate Minority Leader Mitch McConnell (R-KT) stated during a May 27 CNBC interview, “We’re open to spending some more … we’re going to keep talking.”
- White House Press Secretary Jen Psaki issued a May 27 statement on the Republican infrastructure proposal. “We are concerned that the proposal on how to pay for the plan remains unclear: we are worried that major cuts in COVID relief funds could imperil pending aid to small businesses, restaurants and rural hospitals using this money to get back on their feet after the crush of the pandemic.” The statement added, “As for the path forward … we will work actively with members of the House and Senate next week, so that there is a clear direction on how to advance much needed jobs legislation when Congress resumes legislative business during the week of June 7.”
According to Axios, Senate Democrats intend to continue working on bipartisan infrastructure negotiations through the week after Memorial Day congressional recess “… then forge ahead on their own if there's no deal.” (Axios, May 24)
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Congressional Briefing on Section 1031 Exchanges; ‘Stand with Cities’ Event Focuses on Economic Growth
A broad business coalition that includes The Real Estate Roundtable held a virtual briefing this week on the economic importance of like-kind exchanges (LKEs) for members of Congress and their staff. Additionally, several Roundtable members focused on the future of urban areas and economic growth during a “Stand With Cities” webcast.
- President Biden’s April proposal to restrict gain deferred through like-kind exchanges to no more than $500,000 per-year was included in the administration’s formal FY22 budget and revenue proposals released today. (Treasury Department’s Summary of Revenue Proposals, “Green Book” budget documents, and Roundtable Weekly, April 30)
- Yesterday’s congressional LKE briefing was moderated by Roundtable President and CEO Jeffrey DeBoer and featured the following speakers:
- Hessam Nadji, CEO, Marcus & Millichap
- Steve Chirico, Mayor, Naperville, IL
- Professor Milena Petrova, Syracuse University
- Dr. Robert Carroll, Ernst & Young
- Hessam Nadji, CEO, Marcus & Millichap
- The May 27 briefing focused on the longstanding, positive role of like-kind exchanges in the economy and the potential negative unintended consequences of limiting section 1031. (View video of the briefing)
- DeBoer said that as Washington policymakers consider whether and how to pay for infrastructure, clean energy, education, child care, housing and other policy goals, various tax provisions are under consideration, including the Section 1031 exchanges. He also noted how LKEs have been used to finance economic development and support local communities for 100 years – the provision is nearly as old as the income tax itself. (Exeter, history of Section 1031)
LKE Examples & Data

- Nadji described the practical uses of LKEs, which help small business, partnerships and family farms to reinvest profits—in this case, the capital gain earned in a real estate business or investment—on a tax-deferred basis so that a business can continue to grow. He noted that if the exchanges are restricted, it would stifle transactions and hamper the marketplace.
- Mayor Chirico gave real-world examples of how like-kind exchanges have provided an essential tool for attracting economic investment to his community. He stated that because of 1031, Naperville was able to secure a Costco store, which has produced jobs and as much sales tax revenue as their entire downtown business district. “The halo effect of all the Mom and Pop businesses that have now occupied vacant spaces in that very worn-out and distressed area that we once had – it has now been transformed, and it happened during the pandemic,” Chirico said.
- Professor Petrova addressed her extensive research into the macro-economic impact of LKEs with Dr. David Ling. In their recent study, “The Tax and Economic Impacts of Section 1031 Like-Kind Exchanges in Real Estate,” data shows how LKEs have helped preserve capital, allowed investors to upgrade their portfolios and make capital improvements.
- Petrova’s research also demonstrates how elimination of LKEs would likely lead to a decrease in CRE prices, less investment in real estate, greater use of leverage and a decrease in liquidity.
- Dr. Carroll discussed his recent study on the “ Economic contribution of the like-kind exchange rules to the US economy in 2021.” His key results focused on the positive economic activity supported by LKEs; employment supported by the exchanges, listed by industry; and taxes paid by and related to businesses that make use of Section 1031.
Stand With Cities

- Several Roundtable members participated this week in Commercial Observer’s “Stand With Cities” webcast, which focused on how civic, city, state, and business leaders are joining forces to strengthen the economies of U.S. urban centers. A list of all participants is on the event website. (Roundtable Weekly, May 21)
- Commercial Observer’s May 26 article about the webcast quoted The Roundtable’s DeBoer on the future of the state and local tax (SALT) federal deduction. “If there is a tax bill, there will be something on it that temporarily lifts the SALT cap or repeals it completely,” DeBoer stated.
- To view the entire webcast or individual panels:
- Full Video – Stand With Cities
- Today’s Urban Issues & Supporting Economic Growth
- A Closer Look at Urban Lifestyle Trends: Reimagining the Live/Work/Play Concept
- Talent Wars: How Cities Are Staying Competitive For the Top Workers in the U.S.
- Reviving Tourism, Entertainment, Retail & Hospitality
- Always Be Prepared: Resiliency Protecting Our Cities From the Next Disaster
- The Big Rethink: High-Level Takeaways & The Future of City Adaptation
- Full Video – Stand With Cities
Like-Kind exchanges and economic growth proposals under consideration by Washington policymakers will be a focus of discussion during The Roundtable’s June 15-16 Annual Business Meeting and Policy Advisory Committees Meetings (all remote).
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Senate Finance Committee Advances Energy Tax Bill with Enhanced Incentive for Energy Efficient Building “Retrofits”
The Senate Finance Committee on Wednesday advanced an improved energy efficiency tax deduction for commercial buildings (Section 179D) that would make the incentive more usable for “retrofits” of older buildings, multifamily structures, and REITs. (Clean Energy for America Act (S. 1298), mark-up video and supporting documents)
Section 179D & CRE
- The modified bill introduced by Chairman Ron Wyden (D-OR), above, included amendments originally proposed by Sen. Ben Cardin (D-MD) to improve Section 179D. Overall, the bill would replace a patchwork of more than 40 energy tax policies with incentives for commercial and residential energy efficiency, clean electricity, and clean transportation fuels, and eliminate fossil fuel subsidies.
- The Section 179D enhancements would allow:
- A retrofit project tax deduction for efficiency investments that lower an existing building’s energy consumption from a “pre-retrofit” baseline measured through EPA’s Portfolio Manager benchmarking tool;
- All multifamily buildings to qualify for the Section 179D incentive;
- REITs to benefit from the incentive by allowing the amount of the 179D tax deduction to reduce earnings and profits (“E&P”) in the year that energy efficient equipment is placed in service.
- A retrofit project tax deduction for efficiency investments that lower an existing building’s energy consumption from a “pre-retrofit” baseline measured through EPA’s Portfolio Manager benchmarking tool;
- The legislation also includes new rules requiring that taxpayers claiming Section 179D or other tax benefits in the bill comply with the Department of Labor’s prevailing wage standards and use qualified apprentices for at least 15 percent of the labor hours associated with any construction, alteration, or repair work on the project.
Roundtable Recommendations

- The Real Estate Roundtable submitted comments on May 26 prior to the mark-up. The letter included a strong endorsement of the retrofit incentive and the E&P fix for REITs that the Chairman’s “modified mark” ultimately adopted.
- The Roundtable letter also stated that the bipartisan E-QUIP Act (H.R. 2346) should be added to the bill. The E-QUIP Act would offer component-based, 10-year “accelerated depreciation” for new HVAC, lights, windows, roofs and other building equipment installed in older buildings.
- The Roundtable and a broad coalition of environmental, manufacturing, real estate, and other business groups are strong supporters of the E-QUIP Act. (Roundtable Weekly, April 2)
Davis-Bacon Prevailing Wage Concerns

- The Roundtable's letter opposed new prevailing wage mandates proposed by the bill. The Roundtable warned that the excessive costs from Davis-Bacon compliance will greatly exceed the amount of any tax deduction that Section 179D might provide to incentivize an energy efficient construction project.
- “Davis-Bacon has never been applied simply because the Internal Revenue Code provides a deduction to lower a private entity’s taxable income,” the letter stated. “The Roundtable recommends that the Clean Energy for America Act avoid unchartered territory that would transform the Internal Revenue Code into a ‘Davis-Bacon Related Act.’”
- Committee Ranking Member Mike Crapo (R-ID), above, said, “I cannot support attaching labor requirements to energy tax policy. Linking labor policy to energy-related tax credits is unprecedented, and I have concerns not only about the policy, but also about the dangerous precedent it sets for amending the tax code.”
- After the committee voted 14-14 along party lines to advance the $260 billion energy tax bill, Chairman Wyden said he would place the bill on the Senate calendar. (CQ, May 26).
- The bill’s prospects in the full Senate are uncertain, yet specific elements within the bill could be incorporated into a larger economic package proposed by President Biden. Wyden has not said whether he will work to roll the measure into the president’s infrastructure plans. (BGov, May 26)
Energy and tax policies affecting commercial real estate will be a focus of discussions during The Roundtable’s June 15 all-member Annual Meeting – and during its June 16 Tax Policy Advisory Committee (TPAC) and Sustainability Policy Advisory Committee (SPAC) Meetings.
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Commercial Real Estate Executives Report Improved Current Markets and Caution Ahead
Commercial real estate executives report Q2 market conditions have stabilized since the previous quarter, yet note the future is clouded by concerns about labor shortages, inflationary pressures and the outcome of current policy proposals in Washington, according to The Real Estate Roundtable’s Q2 Economic Sentiment Index.
Current and Future Sentiment
- The Roundtable’s Overall Sentiment Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any result over 50 is viewed as positive. This quarter’s Overall Sentiment registered a score of 77.
The Roundtable’s Q2 Current Sentiment score of 78 is a 34-point increase over Q1, reflecting increased vaccination, a reduction in the number of positive COVID tests, and moves to reopen businesses. The current sentiment score also stands in contrast to the economic environment of one year ago, when the current sentiment score hit 13, an 11-year low.
However, sentiment reported in Q2 about Future Conditions registered a flat score of 75 – only one point more than the previous quarter – reflecting continued concerns about the pandemic’s long-term impacts.
Roundtable Insight
- Roundtable President and CEO Jeffrey DeBoer said, “Industry leaders are encouraged by the steady progress of vaccinations, rapidly declining infection rates and businesses reopening, but their ongoing concerns over increasing construction costs, inflationary pressures and labor supply have resulted in a more measured outlook.”
“As the long-term economic repercussions of the pandemic remain unclear, Washington lawmakers should prioritize new policies that encourage continued economic growth over initiatives that could hinder the recovery,” DeBoer added.
- The Roundtable’s survey for the Q2 Sentiment Index also shows that eighty-three percent of respondents believe that general market conditions today are “much better or somewhat better” versus one year ago – and that availability of capital remains plentiful compared to one year ago.
The Roundtable’s Q2 Economic Sentiment Index’s Topline Findings include:
- An Improvement in Current Market Conditions
Respondents’ views reflect the progress of the national vaccination rollout and improvements in near-term conditions, compared to the economic trough one year ago. - Increasing Values for In-Demand Asset Classes
Respondents report investors are starting to bid up asking prices for in-demand asset classes such as life science and storage. - Steady Capital Markets
Most respondents cited accessible capital market for debt and equity, especially when compared to a far more difficult overall market one year ago.
- An Improvement in Current Market Conditions