A partial federal government shutdown over the issue of funding for a wall on the Mexican border continued this week after the new 116th Congress was sworn in and Democrats elected Rep. Nancy Pelosi (D-CA) as House Speaker.  

Democrats elected Rep. Nancy Pelosi (D-CA) as House Speaker at the start of the 116th Congress.

• The shutdown began Dec. 21 after negotiations were unable to resolve President Trump's request of at least $5 billion for construction of a wall versus Democrats' offer of approximately $1.3 billion for border security.  
• After taking control of the House yesterday with a 235-199 majority (one seat is still contested), Democrats passed legislation to reopen the government.  Their legislative proposals consist of a six-bill spending package (H.R. 21) to fund a number of agencies for the rest of the fiscal year until September 30 - with a continuing resolution (H.J. Res 1) to fund the Department of Homeland Security (DHS).
• Senate Majority Leader Mitch McConnell (R-KT) stated yesterday he will not allow funding legislation on the Senate floor for a vote unless it is supported by President Trump.  (New York Times, Jan. 4)
• Congressional leaders met with President Trump twice this week in attempts to negotiate a spending deal.  After today's White House meeting, Trump said he "absolutely" told policymakers that the shutdown could last months or years, but that he hopes planned talks this weekend will lead to an agreement.  (BBC News, Jan. 4)
• The impasse has halted operations for about 25% of government agencies, with approximately 380,000 federal employees on furlough and another 420,000 working without pay. The shutdown affects seven agencies, including DHS, which has temporarily halted operations for immigration programs including the EB-5 investment program.

The partial government shutd own began Dec. 21 after negotiations were unable to resolve President Trump's request of at least $5 billion for construction of a wall versus Democrats' offer of approximately $1.3 billion for border security.

• The National Flood Insurance Program, administered by the Federal Emergency Management Agency (FEMA), said it would continue to allow sales of new flood insurance policies during the shutdown.  FEMA Administrator Brock Long noted that Congress reauthorized the flood insurance program through May 31, 2019 and Trump signed the legislation (S. 3628) before the shutdown began.  Brock also cited The National Association of Realtors estimate that the inability to sell new flood insurance policies would affect 1,400 home closings each day. (NAR, Dec. 27 and CQ, Dec. 28)
• White House Council of Economic Kevin Hassett said yesterday that the shutdown will cut U.S. economic output by about 0.1 percent every two weeks. "Our estimate is that GDP in the first quarter could go down by about a tenth if this were to resolve in the next few weeks," Hassett said at the White House. (Bloomberg, Jan. 3)
• Separately, the new Democratic majority in the House has established a Select Committee on the Climate Crisis, which will be chaired by Rep. Kathy Castor (D-FL).  "We must ... face the existential threat of our time: the climate crisis," Pelosi said in her opening address to Congress Thursday. (Politico, Jan. 3) 
• Additionally, the House Energy and Commerce Committee announced this week that climate change would be the subject of its first hearing in 2019.  (Energy and Commerce, Jan. 3)

The effects of the government shutdown and prospects for policymaking in the new divided Congress will be topics for discussion during The Roundtable's Jan. 29-30 State of the Industry Meeting in Washington, DC.

Outgoing House Ways and Means Chairman Kevin Brady (R-TX) released a draft bill on Jan. 2  that includes tax technical corrections to previously enacted legislation, including the Tax Cuts and Jobs Act (TCJA) overhaul. 

Outgoing House Ways and Means Chairman Kevin Brady (R-TX) released a  draft bill  on Jan. 2  that includes tax technical corrections to previously enacted legislation, including the  Tax Cuts and Jobs Act (TCJA)  overhaul.

• Rep. Brady stated, "We are releasing this discussion draft of technical corrections with respect to the TCJA and other tax legislation to inform stakeholders and provide the American people an opportunity to submit feedback on the draft provisions.  I look forward to gaining valuable feedback from the public and working with my colleagues in the House and Senate on both sides of the aisle as we continue to provide clarity and certainty for job creators across the country seeking to invest in their workers and our communities."  

• The path forward for a technical corrections bill in the 116th Congress will be set by the new Ways and Means Chairman – Rep. Richard Neal (D-MA).

• The 90-page text of the discussion draft bill is complemented by a Joint Committee on Taxation explanation of the legislation.   The bill includes several provisions important to real estate:

• Clarification that the recovery period for qualified improvement property is 15 years, or 20 years under the alternative depreciation system (ADS);
• Clarification that REIT dividends received indirectly by a mutual fund shareholder qualify for the 20% pass-through deduction;
• Clarification that the Opportunity Zone tax deferral benefit only extends to capital gains – a position that was also incorporated in Treasury’s October proposed regulations.
• Numerous other clarifications in the Brady draft relate to business interest (§ 163(j)), the pass-through deduction (§ 199A), and the limitation on active losses (§ 461(l).  

The path forward for a technical corrections bill in the 116th Congress will be set by the new Ways and Means Chairman – Rep. Richard Neal (D-MA) .

• There is strong bipartisan support for certain technical corrections, such as the 15-year recovery period for qualified improvement property, which could help spur action on a larger tax package.  

• However, the current draft does not clarify that a business electing out of the new interest limitation is subject to a 30-year ADS recovery period for residential rental property placed in service before 2018.  The issue could be addressed in future versions of the legislation.  

• Prospects for enactment of technical changes is uncertain, although Ways and Means Chairman Neal stated this week that hearings on tax legislation may be held in early 2019 on the TJCA’s impact and alternative proposals.  Neal also suggested that he will seek agreement with Ranking Member Brady on legislation addressing healthcare, infrastructure and retirement savings. (Wall Street Journal and Tax Notes, Jan. 4)

The Roundtable’s Tax Policy Advisory Committee (TPAC) will review these proposals, which will be a focus during TPAC’s Jan. 30 meeting, held in conjunction with The Roundtable’s State of the Industry Meeting in Washington, DC.