The Real Estate Roundtable continued to weigh in with lawmakers with concerns on a number of Biden administration tax proposals as the House Ways and Means Committee prepared to mark-up tax measures early next week that may potentially affect commercial real estate.
Ways & Means Timeline
- Congressional committees are aiming to complete work by Sept. 15 on various portions of the massive infrastructure package, which Democrats will consider under “reconciliation” budget rules that require a simple majority to pass in the narrowly divided Congress. (Wall Street Journal, August 24)
- Ways and Means Chairman Richard Neal (D-MA) expects to release details on his revenue proposals over the weekend. The top ordinary tax rate and the corporate tax rate are expected to be a key focus of the committee's deliberations. (The Hill, Sept. 9)
- Ways and Means member Stephanie Murphy (D-FL) stated this week she will vote against the committee’s measures unless more time is available to review the proposals. (CNN, Sept. 9)
- Rep. Murphy, a moderate, said she supports the use of reconciliation to enact Democrats’ economic priorities, but at this stage, she said, “I have no choice but to vote ‘no’ on each subtitle and on final passage,” she said. (Roll Call, Sept. 9)
- “I don’t know how much we’re spending, how much we’re raising, how we’re spending some of the money and how we’re raising any of the money,” she said. (Murphy statement, YouTube, Sept. 9)
President Biden’s tax proposals that may be considered by Ways & Means include:
Like-kind Exchanges (Section 1031)
- A coalition of 27 business organizations, including The Real Estate Roundtable, wrote to congressional tax-writing committee leadership on Sept. 7 about how Biden’s proposed legislative restrictions on like-kind exchanges, if enacted, would undermine the economic recovery while causing unintended and unnecessary risks to the strength and stability of U.S. real estate.
- The coalition’s letter details how like-kind exchanges under section 1031 support jobs and investment; the health of U.S. commercial real estate and real estate markets; and the preservation of family-owned farms, ranches, and forestland.
- Tax Notes on August 9 published an article entitled “The Tax Policy Case for Section 1031” by Roundtable Tax Policy Advisory Committee Member Don Susswein (Principal, RSM US LLP), Roundtable Senior Vice President and Counsel Ryan McCormick and Kyle Brown (Senior Manager, RSM).
- The article addresses how like-kind exchanges increase net investment, boost state and local tax revenue, stimulate capital expenditures which leads to job growth, reduce leverage and financial risk, lower rents for households, and support healthy property values. The article also shows how use of section 1031 also creates a ladder of economic opportunity for minority-, veteran-, and women-owned businesses and cash-poor entrepreneurs who may lack access to traditional sources of financing.
- Advertising messages on the need to preserve section 1031 will begin running on Sept. 13 in Politico’s Morning Money.
Pass-Through Business Income Deduction (Section 199A)
- More than 120 business trade associations, including The Roundtable, are part of the broad-based Main St. Employers coalition, which wrote to Ways and Means Chairman Neal on Sept. 8 about new Biden tax proposals affecting individually- and family-owned businesses. (Coalition letter)
- The letter states, “Proposals to raise rates on pass-throughs and C corporations, cap the Section 199A deduction, increase the capital gains tax, and impose capital gains at death would raise taxes on Main Street businesses when they operate, when they are sold, and when they are passed on to the next generation.”
Step-up in Basis and Taxation of Gains at Death
- A Sept. 9 letter to congressional tax-writing committee leadership from a large multi-industry trade association coalition that includes The Roundtable strongly opposed Biden administration proposals to death a taxable event for inherited assets and eliminating stepped-up basis.
- The Family Business Estate Tax Coalition letter also cited a recent EY report that showed if stepped-up basis were repealed via carryover basis, 40,000 jobs would be lost every year in the first 10 years after enactment and GDP would decrease by $50 billion over 10 years.
- The National Association of Realtors also weighed in on the administration’s tax proposals above in a Sept. 7 letter to leaders of the House Ways and Means and Senate Finance Committees. The letter emphasized how these the proposals could negatively impact the health of the commercial real estate market and limit the production of much-needed affordable rental housing and result in higher rent costs.
- Policymakers are also expected to address tax issues such as raising the capital gains rate, the 3.8% net investment income tax, and carried interest, as well as tax incentives for important priorities like affordable housing and energy efficiency.
Roundtable members are encouraged to contact the Ways and Means Committee directly about the Biden tax proposals. The Roundtable and its coalition partners expect this fall will be a critical time for decisions on national tax policy affecting CRE.
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