The Biden administration this week released its $7.3 trillion FY2025 budget request, which includes $4.9 trillion in tax increases and several tax proposals impacting capital gains. The Treasury Department also released its "Green Book," which provides detailed descriptions of the budget’s tax proposals and associated revenue estimates. (White House budget and Treasury news release, March 11)

Capital Gains Focus

• The White House’s annual budget represents the economic policy agenda of the Biden administration. While it is a wish list with no immediate impact, it sets a marker for upcoming debates on spending and fiscal priorities in Congress and throughout the upcoming election. This week’s budget document includes many of the same tax proposals in President Biden’s previous budgets and policies outlined during his State of the Union address last week. (Roundtable Weekly, March 8 and White House Fact Sheet on the Budget, March 11)

• The FY2025 Green Book repeats the administration’s proposal to tax capital gains at ordinary income rates—nearly doubling the capital gains rate from 20% to 39.6%.  The budget would also increase the net investment income tax from 3.8% to 5% and extend the tax to all pass-through business income, effectively ending the exception for real estate professionals active in the business. As a result, the top combined tax rate on real estate capital gains and rental income would rise to 44.6%.

• Other tax proposals in the budget would create a 25% minimum tax on the unrealized gains and income of individuals with more than $100 million in wealth, recapture depreciation deductions at ordinary income rates when real estate is sold, and raise the top personal income tax rate from 37% to 39.6% for those making more than $400,000. The president also proposes to raise the corporate tax rate from 21% to 28%. (The Hill, March 13)

• Biden’s 2025 budget would largely eliminate the deferral of capital gain through like-kind exchanges (section 1031) and tax all carried interest as ordinary income. (White House Fact Sheet, March 11)

Tax Debates Begin

• Treasury Secretary Janet Yellen will testify on the administration’s budget and tax proposals before the Senate Finance Committee March 21 and during an upcoming House Ways and Means Committee hearing.

• The Green Book will serve as a reference for congressional Democrats who develop large-scale tax legislation for the next Congress in anticipation of the expiration of 2017 Tax Cuts and Jobs Act provisions at the end of 2025.

• As the FY2025 budget proposals spark a wide-ranging tax debate, a current $79 billion tax package—passed by the House and supported by The Roundtable—is pending in the Senate. (CQ News | Politico Pro | Tax Notes, March 15). Additional proposals in the budget impact housing policy—see story below.

Joint Employer Rule Struck

• Separately, a federal court on March 8 blocked the National Labor Relations Board’s (NLRB) final joint-employment standard rule. The decision from the U.S. District Court for the Eastern District of Texas addressed whether the expansive definition has the potential to expose broad swaths of employers to liability for labor law violations committed by contractors or franchisees. The court vacated the NLRB rule, stating the joint-employment standard interpretation is too broad. (Politico Weekly Shift, March 11, 2024 and Roundtable Weekly, Jan. 17, 2020)

As an appeal from NLRB is expected, employers should continue to comply with the current joint-employer rule adopted in 2020. (JD Supra, March 14)

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This week President Biden and his top economic advisor previewed a new Housing Innovation Fund and forthcoming proposals to encourage additional housing development. The White House’s focus on affordable housing confirmed it will be a top administration priority as the presidential election season picks up momentum. (Politico, March 14)

Administration’s Housing Remarks

• Following his March 6 State of the Union address, which addressed new tax incentives for homebuyers and an expansion of the Low-Income Housing Tax Credit (LIHTC), President Biden spoke this week about other aspects of his housing plan. (Roundtable Weekly, March 8 | White House Fact Sheets: Budget, March 11 and Housing, March 7)

• Biden stated during comments at the National League of Cities, “The federal budget that I’m releasing today has a plan for 2 million more affordable homes, including housing — a housing innovation fund to help communities like yours build housing, renovate housing, and convert empty office space and hotels into housing. The bottom line is we have to build, build, build. That’s how we bring housing costs down for good.” (White House transcript and C-Span video, March 11)

New Initiatives

• White House National Economic Advisor Lael Brainard, above, also addressed the president’s housing proposals this week. “While tax credits are a proven way to boost supply, it is also vital to support the efforts of governors, county executives, and mayors who are pioneering new approaches that can be scaled. That’s why the president is proposing a new $20 billion Innovation Fund for Housing Expansion to help communities expand their housing supply,” Brainard remarked. (White House transcript, March 12)

• Brainard also previewed forthcoming administration housing policies. “In the months ahead, we will take further action– from supporting communities in identifying and removing barriers to housing production to promoting the use of federal resources for conversions from office to residential,” Brainard said. (Urban Institute video of speech and interview, March 12)

• She confirmed that “the centerpiece of the president’s Plan is an expansion of the Low Income Housing Tax Credit (LIHTC) that would produce or preserve 1.2 million affordable units over the next decade.” (HousingWire, March 12)

During a Senate Banking hearing on March 12 on Housing Affordability, Availability, and Other Community Needs, bipartisan support was also expressed for expanding the LIHTC—a policy strongly supported by The Roundtable. (Roundtable Weekly, March 1 and Feb. 16)

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The ramifications of declining values for certain office properties were the focus of several national media interviews this week with industry leaders. The pressures, challenges, and opportunities of the current office market are the consequence of remote work and a post-pandemic shift in the use of the built environment—realities that are leading city officials to assess lower tax revenue assessments and consider policy changes to incentivize commercial-to-residential conversions, cutbacks to local services, or raising taxes. (New York Times, March 14)

Office Conversions

• The New York Times reported this week on the options facing municipal officials as nearly $3 trillion of outstanding commercial real estate debt is coming due by 2028 while tax revenue from commercial properties drops. Refinancing certain office assets at reduced values remains difficult during a period of high interest rates and heightened regulatory concern about regional banks' office loan concentrations. (Trepp, Dec. 21, 2023 and Roundtable Weekly, March 8)

• Roundtable Chairman Emeritus Bill Rudin, above, (Co-Chairman and CEO, Rudin Management Co.) discussed positive options for office property conversions today on CNBC’s Money Movers.

• Rudin offered examples in New York City of successful office reuse. He also emphasized how other cities need to convert obsolete office buildings to residential use by changing multiple dwelling laws, zoning statutes, and a providing a robust tax abatement to incentivize capital into the marketplace for conversions.  

• “It’s a public-private partnership. The capital will come to those projects with the right structure that start creating housing on all levels: affordable, workforce, market rate,” Rudin said.

Evolving Opportunities

• Roundtable Member Hessam Nadji (President and CEO, Marcus & Millichap) spoke with CNBC’s Worldwide Exchange today about the bifurcated office market. He added that investors are exploring opportunities in shopping centers and high-quality offices in suburban markets.

• “(We are) hearing from various institutional investors that it’s the time to buy. Prices have adjusted. There’s record capital on the sidelines. And when you combine those two with confidence that the economy is going to hold up pretty well, you’re going to see capital come back,” Nadji said.

• Blackstone President and Chief Operating Officer Jon Gray discussed investor opportunities in commercial real estate yesterday with Bloomberg Television.

• “As investors, sometimes, one of the risks is that you miss it by being overly cautious and I think now is probably a good time before rates come down. There are definitely assets that were financed in a different era, particularly in commercial real estate because there has been a more profound impact in the office sector—and that will create opportunities,” Gray said.

On the public buildings front, the Biden administration’s 2025 budget plan proposes $425 million for the General Services Administration to reduce the federal footprint and long-term costs through a new “optimization program.” (Federal News Network, March 11)

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Almost two dozen Republican-led states have sued the U.S. Securities and Exchange Commission (SEC) over its climate corporate disclosure rules released last week. (Bloomberg Law, March 12 – paywall | Roundtable Weekly, March 8)

Litigation Gauntlet

• GOP attorneys general in 22 states allege the SEC acted beyond its authority by requiring companies to report certain GHG emissions and costs related to extreme weather.

• The U.S. Chamber of Commerce joined the “legal salvo” against the SEC. (POLITICO, March 15).

• An SEC spokesperson stated the agency will “vigorously defend” petitions filed in the federal appeals courts for the Fifth, Eighth, and Eleventh Circuits. (Bloomberg Law, March 12)

• These suits will likely rely on the “major questions” doctrine, raised in a 2022 U.S. Supreme Court decision that curtailed EPA’s authority to fight climate change. The doctrine provides that a federal agency must have “clear” authority from Congress to regulate issues of “vast economic and political significance.” (E&E News ClimateWire, March 11)

• Meanwhile, environmental groups filed their own counter-suit in the D.C. Circuit. They claim that the SEC’s rules are too “water[ed] down” and fail to provide investors with “material” information on a company’s financial exposure to climate risks. (Newsweek, March 14).

• It will take months for the SEC to run this court gauntlet. The November elections could shape the legal outcome before the suits are resolved, depending on which party controls Congress or the White House.

RER “Fact Sheet”

• Assuming the SEC’s rules are not delayed, the largest public companies must comply with climate-related disclosures in Form 10-Ks filed during fiscal year 2025. (SEC fact sheet, March 6)

• The Real Estate Roundtable has issued its own fact sheet summarizing “What CRE Should Know” about the SEC’s final climate disclosure rules. (RER Fact Sheet, updated March 12).

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) continues to study the new SEC regulations and plans to hold educational sessions at its June 21 meeting in Washington as part of RER’s annual meeting.

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