Highway/Infrastructure Legislation Advances in Senate; House to Take up Senate Version as Controversial GOP Bill Remains Stalled  

Senate Democratic and GOP leaders this week reached agreement on the number and type of amendments that may be offered during Senate floor debate on a two-year, $109 billion transportation funding bill (S. 1813).  Voting on amendments started yesterday, with Senate passage of the final bill expected next week. The bipartisan measure is supported by a wide number of organizations and coalitions, including The Real Estate Roundtable, the U.S. Chamber of Commerce, and Transportation for America (T4A), The Hill reported March 6.

The  current extension of federal transportation funding expires on March 31, while the Highway Trust Fund is due to run out of funds next year.

Some 200 mayors this week also signaled their preference for the Senate bill, expressing strong opposition to the controversial GOP transportation bill that has been stalled for weeks in the House (amid criticism from conservatives and moderates alike, on everything from the oil and gas drilling provisions, to AMTRAK and transit funding provisions, to proposed offsets and highway spending levels).

A March 5 letter from the U.S. Conference of Mayors to congressional leaders warned that failure to act on transportation funding in a timely manner could have “devastating” consequences for the nation. The current extension of federal transportation funding expires on March 31, while the Highway Trust Fund is due to run out of funds next year.

Reflecting the fluidity of the House talks on transportation legislation, House Republicans on Wednesday announced they would stay focused on the controversial highway bill backed by Speaker John Boehner (R-OH) — albeit with some high-profile changes — only to reverse themselves yesterday by announcing that the chamber would vote on the Senate version, after all.

“We’re going to continue to have conversations with our members about a longer-term approach, which frankly most of our members want. But at this point in time, the plan is to bring up the Senate bill — or something like it,” Boehner said yesterday morning (The Hill, March 8).

The Speaker and his vote-counters have been struggling to solidify support within the GOP caucus for the five-year, $260 billion House GOP transportation bill. Efforts to advance a bill last week with an 18-month funding window (which would have brought the House and Senate bills closer together) also failed to gain traction among House Republicans. (Governing, March 7 – regarding decision to stay with 5-yr bill)

Nov. 9, 2011 Roundtable letter to the Senate Environment Committee on MAP-21

As a key underpinning of local, regional and national economies, infrastructure is vital to the health of U.S. real estate markets.

In a Nov. 9 letter to the leadership of the Senate Environment Committee, The Roundtable said the Senate infrastructure bill MAP-21 (the “Moving Ahead for Progress in the 21st Century Act”) represents “a significant step” in the direction of transportation policies that are balanced, prudent and forward-thinking. “The bill advances bipartisan solutions to maintain, improve and modernize our infrastructure — while furthering the critically important objective of getting Americans back to work,” he stated.

The Roundtable also expressed support for a longer-term transportation funding horizon, which would allow for more coordination between transportation planners and real estate stakeholders on key projects. There have been eight short-term extensions of highway/transit funding since the last comprehensive law (SAFETEA-LU) expired in 2009.

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New Senate Bill Would Require EPA to Study Lead Paint Hazards Before Writing Regulations Affecting Residential, Commercial Stakeholders  

The top-ranking Republican on the Senate Environment Committee, Senator James Inhofe (R-OK), unveiled legislation on March 1 that would require the U.S. Environmental Protection Agency (EPA) to carefully study lead-based paint hazards in residential and commercial buildings — and submit its findings to Congress for review — before proposing lead paint or dust regulations covering the commercial real estate sector. 

Dec. 6, 2010 Real Estate Coalition letter to EPA on Lead Dust Hazard Standards

The “Lead Exposure Reduction Act” (S. 2148) — introduced by Senator Inhofe with co-sponsors Roy Blunt (R-MO), John Boozman (R-AR), Tom Coburn (R-OK), Michael Enzi (R-WY), Chuck Grassley (R-IA), and David Vitter (R-LA) — also would require EPA to ensure that on-site “test kits” are available to contractors. This would allow for accurate readings of purported lead-based paint hazards that may arise from renovation and remodeling activities, but which do not require expensive laboratory analysis.

In a Dec. 2010 letter to the EPA, 15 real estate organizations (including The Roundtable) urged federal regulators to obtain more data before proceeding with potential new regulations covering lead dust in public and commercial buildings [Roundtable Weekly, Dec. 10, 2010]. 

“As EPA itself has noted . . . the development of lead hazard standards for public and commercial buildings is fraught with uncertainty due to the minimal data that are available regarding the prevalence of lead dust in these types of buildings and other factors that are critical to the development of a reasonable standard,” the coalition wrote. As of year-end 2010, EPA had still not followed through on congressional directives (under the Toxic Substances Control Act of 1976) to conduct such studies in the commercial buildings context.

Under the Inhofe bill, Congress would have one year to study the EPA findings before the agency could proceed with any proposed rulemaking, giving Hill lawmakers sufficient time to conduct oversight of any new lead paint regulations. 

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Congressional Tax-Writers Examine Corporate Tax Reform, Pass-Through Entities — and How Tax Restructuring Might Boost Growth and Job Creation  

As part of broader policy debates in Washington about boosting U.S. competitiveness and making the tax code simpler and flatter, the House and Senate tax committees this week both held hearings relating to tax restructuring.

The House Ways and Means Committee examined how tax and accounting policies affect closely-held businesses — including high compliance costs and tax rates generally imposed on such businesses — as well as how tax restructuring might improve closely-held businesses’ ability to grow and create jobs.

On Tuesday, the Senate Finance Committee heard testimony focused on corporate tax reform, including the economic costs of eliminating tax “expenditures” in order to offset the cost of a lower overall rate. A day later, the House Ways and Means Committee examined how tax and accounting policies affect closely-held businesses — including high compliance costs and tax rates generally imposed on such businesses — as well as how tax restructuring might improve closely-held businesses’ ability to grow and create jobs.

Closely held businesses utilize a pass-through business model (e.g., S corporation, partnership, limited liability company [LLC] or sole proprietorship), in which taxes are paid through the owners’ personal income tax returns. According to a report by Ernst and Young, America’s pass-through businesses  reported 36 percent of all net business income, but paid 44 percent of all federal business income taxes.

Upon opening Wednesday’s hearing, Ways and Means Chairman Dave Camp (R-MI) said, “This committee should ask when it is appropriate to tax business income on a pass-through basis and when, if ever, it is appropriate to subject business income to entity-level taxation.” He added, “Given the importance of pass-through entities to the U.S. economy and the prevalence of closely-held businesses, the treatment of these job creators is critical to tax reform. Our goal with comprehensive tax reform remains clear: to create an environment that is ripe for economic growth and job creation.”

Witnesses at the House hearing included tax lawyer Stef Tucker (Venable LLP) of The Roundtable’s Tax Policy Advisory Committee (TPAC), as well as academics, economists, and a representative of the National Federation of Independent Businesses.  (download Tucker's testimony)

Stef Tucker (Venable LLP) of The Roundtable’s Tax Policy Advisory Committee (TPAC)

Tucker outlined four basic concepts for reforming the taxation of closely-held businesses, noting that such reform could help reduce taxpayer expenditures (including human capital costs associated with tax compliance): 

(1) access to and accretion of capital

(2) protecting business owners’ personal assets from business risk

(3) protecting the business and personnel

(4) providing for business succession, without without expending significant dollars or human capital when dealing with the Internal Revenue Code.

With the Administration introducing a framework to place higher taxes on pass-through entities to pay for a corporate rate reduction, the taxation of pass-through entities will be a major battle within tax reform — and the definition of what constitutes a “small business” will likely play a significant role in that debate. 

Two weeks ago, the White House and Treasury released a five-point “framework” for business tax reform that would eliminate or reduce dozens of credits, deductions, “loopholes,” and subsidies in order to broaden the corporate tax base and offset the cost of cutting the top corporate income tax rate from 35 percent to 28 percent (Roundtable Weekly, Feb. 24). Not surprisingly, the revenue raisers in the Administration’s plan include a tax hike on partnership “carried interest” — which would disproportionately affect the nation’s roughly 1.2 million commercial real estate partnerships.

The President's Framework for Business Tax Reform

Commercial real estate would be affected by the Administration’s tax reform proposals in several ways: 

• Significantly higher taxes on “carried interest” income, which would now be treated as regular income (subject to a top tax rate of 39.6%) vs. capital gain (subject to a 15% rate)

• CRE firms utilizing pass-through ownership structures would lose widely-used business tax provisions such as accelerated depreciation, interest deductions, the research tax credit and the low-income housing tax credit (LIHTC) — without a corresponding benefit of lower corporate tax rates

If the 2001-2003 (Bush) tax cuts are allowed to expire at year-end, many pass-through business owners (including commercial property owners) would also see their individual tax rates rise, since pass-through business income is subject to the tax rates faced by individual owners.

Although The Roundtable agrees with key tax policymakers that the 35 percent corporate tax rate is too high — and that it hurts U.S. competitiveness — this area of taxation must not be “de-coupled” from issues of individual taxation, which apply to millions of small business owners (including many in commercial real estate). Although it is admittedly more difficult to address corporate and individual taxation together, this is the only way to avoid picking “winners” and “losers” in our economy and undermining broader efforts to move the recovery forward.

The Roundtable also opposes efforts to offset the cost of a corporate rate reduction by simply eliminating tax breaks (“expenditures”) used by C corporations or pass-through entities. 

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