This week, House Freedom Caucus Members proposed ending the ability of businesses to deduct their state and local business and property taxes on their federal income tax returns.  (Politico, Jan. 15)

Why It Matters

• The proposal was raised as a potential offset for relief from the SALT cap on individuals. 

• The proposal was also included in a “menu” of potential policy options prepared by the House Budget Committee for tax and budget reconciliation legislation.  (PoliticoPro, Jan. 17)

• The Budget Committee has a key role in setting the overall size of any reconciliation bill, but the actual details of tax changes fall under the jurisdiction of the House Ways and Means Committee.

Industry & Congressional Response

• “Property taxes and other state-level business taxes are a basic cost of doing business.  Denying the deductibility of these business taxes is nonsensical and would be devastating to American businesses, and especially U.S. real estate.  The purpose of the income tax is to measure and tax income.  Under the proposal, we would no longer have an income tax, we would have a tax on gross revenue.  It would penalize existing property owners, artificially distort business decisions, and raise flashing red lights for anyone even considering a long-term capital investment in the United States,” said Jeffrey DeBoer, President and CEO of The Real Estate Roundtable.

• Senate Democratic Leader Chuck Schumer (D-NY) addressed the proposal on the Senate floor earlier today.  (Senate Democrats, Jan. 17)

• “There is no scenario under God’s green Earth that New York taxpayers will ever accept another unfair SALT cap like the House Freedom Caucus proposes….I will do everything I can, first to remove the entire SALT cap tax, and second to never let a new proposal that for the first time imposes the SALT cap on businesses, small and large, to be put into effect. I’m going to do everything I can to fight this dastardly proposal,” said the Senator.

• The House Freedom Caucus is one of many factions in the House Republican Conference that will have significant leverage over any tax changes in 2025 due to Republicans’ extraordinary slim majority in the House.

House Ways and Means Committee Chairman Jason Smith (R-MO) and House SALT Caucus Co-Chair Rep. Tom Suozzi (D-NY) are scheduled to address Roundtable members at the State of the Industry Meeting next week.

This week, the Senate conducted confirmation hearings for several of President-elect Donald Trump's Cabinet nominees, providing critical insights into the nominees' perspectives and potential policy directions on real estate, housing, the economy, and tax policy under the incoming administration.

Senate Confirmation Hearings

• Scott Bessent – Nominee for Secretary of the Treasury: Treasury nominee Scott Bessent faced bipartisan scrutiny during his Senate Finance Committee confirmation hearing over tax policy, tariffs, and China on Thursday. (Axios, Jan 17)

• He emphasized the importance of extending the 2017 Tax Cuts and Jobs Act, stating, "This is the single most important economic issue of the day." (Roll Call, Jan. 16 | PoliticoPro, Jan. 16)

• “We must make permanent the 2017 Tax Cuts and Jobs Act and implement new pro-growth policies to reduce the tax burden on American manufacturers service workers and seniors,” Bessent said in his testimony. He also praised the Opportunity Zones program as a "resounding success," highlighting its potential to address housing challenges, promote inner-city redevelopment, and support rural growth. (Politico, Jan, 16)

• He also called for spending cuts and shifts in existing taxes to offset the costs that extending the tax cuts would add to the federal deficit. (AP News, Jan. 16)

• Lee Zeldin, nominee for EPA Administrator, Chris Wright, nominee for Energy Secretary, and Doug Burgum, nominee for Housing and Urban Development Secretary, also testified this week and are expected to be confirmed. (see Energy story below)

• Sean Duffy – Nominee for Secretary of the Department of Transportation: Appearing before the Senate Commerce Committee, Duffy emphasized his commitment to safety and pledged to streamline regulatory processes that delay infrastructure projects. Promising to uphold the 2021 infrastructure law, he stated, “I commit to implementing the law," and vowed to expedite funding distribution, addressing delays to ensure critical projects move forward efficiently. (Politico, Jan. 17)

Federal Housing Finance Agency (FHFA) Nominee

• On Thursday, Trump announced he would nominate Bill Pulte for Director of the Federal Housing Finance Agency (FHFA). (HousingWire | Reuters Jan. 16)

• If confirmed, Pulte would oversee Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) standing behind roughly half of the U.S. residential mortgage market.

• The Trump administration is expected to pursue a plan to release Fannie and Freddie from government control. (GlobeSt., Jan. 17)

• GOP lawmakers have raised the idea of including language to mandate Fannie and Freddie’s release in this year’s reconciliation package as a way to offset the cost of extending expiring tax cuts. (Politico, Jan. 16)

House Ways and Means Committee Hearing - TCJA

• The tax debate kicked off Tuesday with the House Committee on Ways and Means’ first hearing on extending key provisions of the TCJA led by Chairman Jason Smith (R-MO). (Fox News, Jan. 14)

• At the hearing, lawmakers discussed expiring provisions of the TCJA including the SALT deduction, Section 199-A, opportunity zones, and child tax credits.

• Congress faces the dual challenge of addressing expiring tax provisions while managing fiscal pressures. While bipartisan cooperation is possible on certain issues like affordable housing, divisions over business tax rates, SALT deductions, and the debt ceiling could stall progress.

What’s Next: RER President & CEO Jeffrey DeBoer will be on Marcus & Millichap’s 2025 Economic & CRE Outlook webinar next Thursday, January 23. He will be joined by Mark Zandi and a panel of industry leaders discussing the macro environment and the potential policies of the new administration and key trends on jobs, the FED outlook, tax policy expectations and more. (Register)

Scott Turner, President-elect Donald Trump’s nominee for Secretary of Housing and Urban Development (HUD), emphasized the transformative potential of Opportunity Zones (OZs) and collaboration with the private sector during his Senate nomination hearing on Thursday. (The Hill, Jan. 16)

Senate Hearing Recap

• At the hearing, members of the Senate Committee on Banking, Housing, and Urban Affairs asked HUD nominee Scott Turner how he would address pressing housing challenges, including the affordable housing crisis, the rising rate of homelessness, and HUD reform. (Turner Testimony)
  
  
• There is an estimated shortage of 5.5 million housing units, resulting in high rents and home prices in many parts of the country. Additionally, HUD released its 2024 Annual Homelessness Assessment Report, which found an 18 percent increase in the estimated point-in-time count of homeless individuals from 2023 to 2024.
  
  
• Speaking on the housing challenges facing the country, Turner said, “We have a housing crisis in our country. We have the American people and families that are struggling every day…HUD, if you will, is failing at its most basic mission, and that has to come to an end.”
  
  
• Turner continued, “As a country, we're not building enough housing. We need millions of homes, all kinds of homes, multifamily, single-family, duplex, condo, manufacturing housing, you name it…I believe that we need to bring HUD staff back to the office to do the job and empower them to serve the American people.”

HUD Nominee’s Policy Priorities

• Turner, who previously ran the White House Opportunity and Revitalization Council during Trump’s first term, highlighted Opportunity Zones, public-private partnerships, and tailored local solutions as key elements of his plan to address the housing crisis.
  
  
• As executive director of the Council, Turner was responsible for carrying out the implementation of Opportunity Zones, which were passed as part of the Tax Cuts and Jobs Act of 2017 (TCJA).
  
  
• The Roundtable—along with 22 other real estate organizations—urged the Senate to approve Turner’s nomination, writing in a Jan. 14 letter to the Senate committee that Turner is well-equipped to lead as Secretary of HUD.

The Power of Opportunity Zones

• RER has long championed Opportunity Zones (OZs) as a transformative tool to stimulate economic growth and increase the supply of affordable housing in low-income areas. By creating tax incentives for investments in designated low-income census tracts, OZs have channeled investment into areas most in need.
  
  
• Since its inception, the Opportunity Zones program has raised nearly $100 billion in private capital, catalyzed the creation of more than 500,000 jobs, and spurred multifamily housing developments in underserved areas. 20% of multifamily units under construction were located in OZs as of early 2024. (The New Localism, Jan. 9)
  
  
• Given the program’s success, prominent experts, including Bruce Katz (Founding Director of the Nowak Metro Finance Lab at Drexel University) and Steven G. Glickman (co-founder and former CEO of the Economic Innovation Group, former senior economic adviser in the Obama White House) have advocated for making OZs a permanent part of the tax code to ensure its long-term benefits. (Governing, Jan. 2)
  
  
• RER has called on Congress to improve and extend the program, which is set to expire along with other key provisions of the TCJA at the end of this year.

RER will continue to work with policymakers in Congress and officials at HUD to build on the success of programs like Opportunity Zones. Through bipartisan policies that harness the power of the private sector to significantly increase the supply of affordable housing, the U.S. can make meaningful progress toward ending the housing crisis.

This week’s confirmation hearings shed light on the Trump Administration’s ambitious energy agenda, including plans to expand American energy production, streamline project approvals, and explore a carbon tariff on imports. (PoliticoPro, Jan. 16)

“All of the Above” Energy Policy

• President-elect Trump has prioritized "drill, baby, drill" as a cornerstone of his agenda, emphasizing energy independence and dominance through increased domestic oil and gas production.

• Chris Wright, the Energy Secretary nominee, told the Senate Energy Committee on Wednesday that he would use the role to “unleash American energy at home and abroad” if confirmed. (Reuters, Jan. 15)

• Wright said in his opening statement that he would focus on three objectives: removing barriers for energy projects, accelerating innovation by the national laboratories, and advancing U.S. energy domestically and abroad. (Roll Call, Jan. 16)

• North Dakota Governor Doug Burgum, the Interior Secretary nominee, said at his Thursday confirmation hearing that the U.S. must expand domestic energy production and electricity generation to meet growing demand, particularly from AI technologies. (Politico, Jan. 16 | Roll Call, Jan. 16 )

• Burgum supports an “all-of-the-above” approach that would utilize renewables and fossil fuels.  Trump has also tapped Burgum to lead a White House-based energy council that would coordinate policy across the federal government. (Politico, Jan. 9)

• Former Representative Lee Zeldin, the nominee for EPA Administrator, said at his Thursday hearing he would work in a bipartisan manner with career staff to fulfill the agency's mission. (PoliticoPro, Jan. 16 | The Hill, Jan. 16)

• Zeldin vowed to address climate change without “suffocating the economy,” and committed to private sector collaboration to “promote common sense, smart regulation.” (NBC News, Jan. 16 | Washington Post, Jan. 16)

Carbon Tariff Proposal

• During his Thursday confirmation hearing, Treasury Secretary nominee Scott Bessent (see Policy Landscape story above) expressed interest in a carbon tariff on imports, suggesting it could be part of a broader Trump administration strategy to raise revenue, counter unfair trade practices, and boost negotiating leverage.

• Bessent indicated the potential for such measures to align with the administration's broader trade and economic goals. (PoliticoPro, Jan. 16)

• Recently, Sen. Bill Cassidy (R-LA) proposed a bill, the “Foreign Pollution Fee Act” that would impose a “foreign pollution fee” on imported carbon-intensive products – including construction materials. (E&E News, Dec. 12)

• The bill’s co-sponsor, Sen. Lindsey Graham (R-SC), spoke about the bill at Bessent’s hearing. "If you want to clean up the environment, a carbon fee seems to be a good way to do it, to punish China and India for bad carbon practices," Graham said. (Politico, Jan. 16)

• The Roundtable submitted comments today on the Foreign Pollution Fee Act. The letter raises concerns regarding the impact of a carbon tariff on affordable housing constriction, rebuilding after natural disasters, and technical issues on calculating “indirect emissions” associated with product manufacturing.

Other Energy News This Week

• President Biden issues executive order to advance U.S. artificial intelligence (AI) infrastructure: President Biden issued an executive order directing agencies to lease federal land for “gigawatt-scale” to support new data center construction. (AP News, WH Press Release, Jan. 14)

• 179D energy efficiency tax deduction: The Energy Department (DOE) launched the 179D Portal, offering tools for new commercial construction and retrofits to estimate energy savings and qualify for potential federal tax incentives. (DOE Press Release, Jan. 14)

• California wild fires raise electricity costs: The Los Angeles wildfires, which caused over $250 billion in damages and severely impacted the region's electrical infrastructure, have driven a nearly 50% increase in California's residential electricity rates since 2019, raising concerns about the fairness of passing these wildfire-related costs onto customers. (Politico, Jan. 15)

• Maryland building emissions standards lawsuit: A coalition of trade organizations filed a federal lawsuit arguing that the Maryland Building Energy Performance Standards (BEPS) is illegal because it is “pre-empted” due to its conflict with federal laws. The Maryland law mandates large buildings to reduce greenhouse gas emissions by 20% within five years and achieve net-zero emissions by 2040. The lawsuit claims the rules exacerbate the housing crisis, strain the power grid, and violate consumer choice. (Baltimore Banner, Jan. 14 | (Baltimore Sun, Jan. 16)

The fires in Los Angeles this week have caused tremendous damage to lives and property, demonstrating how risks from natural catastrophes are a growing challenge to both people and industries across the country. National policy solutions are needed to prepare for the future and effectively manage natural catastrophe risk.  (Associated Press, Jan. 11 | RAND, Jan.16)

Historic Damages

• The devastating fires tearing through Los Angeles are poised to become the costliest in US history and are fueling an insurance crisis in California, raising questions about how millions of homeowners will secure coverage against future disasters. (Associated Press, Jan. 11)

• Damages from the LA fires could reach up to $275 billion after the blazes ripped through some of Los Angeles County’s wealthiest neighborhoods. (Orange County Register, Jan. 16)

• The staggering costs stem from fires hitting densely populated areas filled with some of the nation’s priciest real estate, says Accuweather’s Chief Meteorologist Jonathan Porter. (Associated Press, Jan. 11)

Insurance Impact

• The wildfires that destroyed homes in multiple sections of the Los Angeles area will test California’s efforts to stabilize the state’s insurance marketplace after many insurers stopped issuing residential policies due to the high fire risk. (KNBC, Jan.10)

• The California FAIR Plan was created in 1968 and provides basic fire insurance coverage for high-risk properties when traditional companies would not. (NYT, Jan.14 | Bloomberg, Jan. 15)

• Some are worried that the FAIR Plan won’t have enough funds to cover the damages, but FAIR Plan spokesperson Hillary Mclean assured the public that "the FAIR Plan has payment mechanisms in place, including reinsurance, to ensure all covered claims are paid.” (KNBC, Jan.10)

• The U.S. Treasury's Federal Insurance Office (FIO) released a report Thursday, showing homeowners insurance costs are rising faster than inflation, with premiums 82% higher in high-risk ZIP codes due to climate-related disasters. (Treasury News Release, Jan. 16)

• The report based on extensive data from 2018-2022, highlights increasing challenges for homeowners and insurers alike, as nonrenewal rates and claims costs surge in areas most affected by severe weather events. (CNBC, Jan. 16)

Policymaker and Industry Reaction

• Policymakers are working to streamline the permitting process to expedite recovery and are actively monitoring the insurance marketplace. Senator Sheldon Whitehouse (D-RI) told CBS News “We will be watching to see whether the collapse of a trembling home insurance market accelerates after this added shock”. (CBS News, Jan.16)

• California Governor Gavin Newsom has temporarily suspended permitting and review requirements under the California Environmental Quality Act (CEQA) and the California Coastal Act. The move aims to expedite the rebuilding process for fire victims, enabling faster restoration of homes and businesses, Newsom said. (GlobeSt., Jan. 14)

• The proliferation of natural catastrophe threats has raised concerns about commercial insurance coverage for real estate.

• Republicans on the Senate Banking Committee, led by Senators John Kennedy (R-LA) and Mike Rounds (R-SD), are drafting legislation to reform the National Flood Insurance Program (NFIP) and provide broader disaster relief for victims of catastrophes like wildfires, floods, and storms. (The Hill, Jan. 14)

• The proposed initiative aims to expand and improve disaster coverage without relying on taxpayer subsidies, addressing long-term issues with the NFIP and creating a more comprehensive program for natural disasters.

Real Estate Industry Response

• The real estate industry continues to lead in the response and recovery to these fires.

• A group of 15 leading multifamily firms and commercial real estate industry groups has quickly banded together to support residents and rebuild Los Angeles following the wildfires that struck the city. RER members, including Cityview, Lincoln Property Company, and Marcus & Millichap support the coalition. (ConnectCRE, Jan. 16)

Natural catastrophe insurance will be discussed at RER’s upcoming Homeland Security Task Force and Risk Management Committee Meeting next week at our 2025 State of the Industry Meeting in Washington, DC.