Category: Tax Policy

Senators Propose New Restrictions on Conservation Easement Donations

Posted on by Trey Jackson

Conservation easement - Ducks Unlimited

Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) released legislative text yesterday with new restrictions on conservation easements as a revenue offset for their new retirement savings bill.

Easement Restrictions

  • Section 1104 of the Senate Finance committee’s summary of the Enhancing American Retirement Now (EARN) Act states that since 2016, the IRS “has identified certain syndicated conservation easement transactions involving pass-through entities as ‘listed transactions’ carrying a high potential for abusive tax avoidance.” (Legislative text)
  • The EARN provision would disallow a charitable deduction for a qualified conservation contribution if the charitable deduction claimed exceeds two and one half times the sum of each partner’s relevant basis in such partnership— unless the contribution meets a three-year holding period test. (Section-by-section summary of the EARN Act)

What’s Next

Conservation easement -- Capital Region

  • The Senate Finance Committee adopted the conservation easement proposal in June during consideration of the EARN Act, which passed on a 28-0 vote. The House passed its retirement legislation by a wide margin in March. The two packages will have to be reconciled. (PoliticoPro and TaxNotes, Sept. 9)

Conservation easement changes, retirement-related legislation, expiring tax provisions, and potentially other tax proposals could gain momentum during the “lame duck” legislative session  following the November mid-term elections.

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New Research Details Trends in Like-Kind Exchanges and Impact on US Economy

Posted on by Trey Jackson

TPAC during Annual Mtg 2022

New research highlights emerging trends related to real estate like-kind exchanges (LKEs) and their growing importance to the US economy. The report by EY economist and former Treasury Deputy Assistant Secretary for Tax Analysis Robert Carroll was presented to The Real Estate Roundtable’s Tax Policy Advisory Committee (TPAC), above, on June 17. EY partnered with the Real Estate Like-Kind Exchange Coalition, which includes The Roundtable, to produce the updated LKE report with 2021 data. (TPAC slide presentation, June 17)

LKE Data and Trends

EY LKE presentation to TPAC 2022

  • LKEs under section 1031 of the tax code allow businesses to defer capital gains tax on the disposition of real estate if the gain is used to acquire replacement property of like kind within six months.
  • The EY report—“Economic Contribution of the Like-Kind Exchange Rules to the US economy in 2021: An Update”—updates EY’s prior research that used LKE data from 2019.
  • The survey found that the dollar volume of like-kind exchange activity and number of transactions increased by 70% between 2019 and 2021. The increase was identified by a survey of qualified intermediaries as the US economy recovered from the COVID recession.
  • According to the author, the increase in LKE activity “is likely due, in part, to the transition of many qualified real property assets to new or modified uses to meet post-pandemic business models and tenant needs, a trend that may continue, at least to some degree, for the next several years.”

LKE Economic Impact

EY LKE updated data 2021

  • The EY report estimates the impact of like-kind exchange rules on the cost of capital and assesses the likely impact of section 1031 on investment decisions and investment levels. EY’s significant findings include:
    • Job growth and labor income
      Overall, economic activity generated by Section 1031 exchanges in 2021 supported 976,000 jobs and $48.6 billion of labor income.
    • Gross Domestic Product
      Like-kind exchanges generated $97.4 billion in value added in the United States in 2021. “Value added” measures a sector’s or industry’s contribution to the production of final goods and services.
    • Federal, state, and local tax revenue
      Taxpayers engaged in like-kind exchanges—along with suppliers and related consumer spending—were estimated to generate approximately $13.1 billion in federal, state, and local taxes during 2021.
  • The EY research builds on the groundbreaking academic research on LKEs commissioned by The Roundtable and other members of the Real Estate Like-Kind Exchange Coalition at the height of the tax reform debate. This work by Professors David Ling (Univ. Fla.) and Milena Petrova (Syracuse U.) was subsequently published in 2020 in the peer-reviewed Journal of Real Estate Literature here and here.

The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue working to raise awareness of the role that like-kind exchanges play in supporting the health of the US economy and the stability of real estate markets.

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Senate Republicans Propose Middle-Class Tax Relief, Financed by SALT Cap Extension

Posted on by Trey Jackson

Capitol dome side flag overcast

Congressional Republicans this week proposed legislative measures—aimed at helping middle-class savers and spurring investment without further increasing inflation—as a precursor of GOP economic policies that may be promoted during the fall’s midterm elections. Senate and House announcements on inflation followed last week’s Labor Department report showing the consumer price index reached 8.6 percent in May. In response, the Federal Reserve raised interest rates  by 75 basis points, its largest hike since 1994. (Wall Street Journal and Tax Notes, June 14 | CNBC, June 15) 

Senate GOP Proposal 

  • This week, Sens. Chuck Grassley (R-IA), John Barrasso (R-WY), Steve Daines (R-MT), and James Lankford (R-OK) introduced the Middle-Class Savings and Investment Act.  The legislation aims to help the middle class through tax cuts and savings incentives, paid for by extending the current $10,000 cap on the deduction for state and local taxes. (Sen. Grassley news release, June 14) 
  • The Republican-introduced bill would:
    • Expand the Zero Rate Bracket for Capital Gains and Dividend IncomeThe legislation would increase the size of the zero percent tax bracket for long-term capital gains and qualified dividends. Under the proposal, a married couple with income under $178,000 would not owe tax on capital gains and dividend income. 
    • Provide Relief from the Net Investment Tax for a Married CoupleThe legislation would exempt the first $400,000 earned by a married couple from the 3.8 percent net investment income tax that otherwise applies to capital gains, dividends, and passive rental income. Currently, the first $200,000 earned by an individual and $250,000 earned by a married couple is exempt from the tax. 
    • Create and Expand Tax Relief for Interest Income and Retirement SavingsThe legislation would allow individuals to exclude up to $300 ($600 if married) of interest income from taxation. Additionally, the bill would expand the tax credit that encourages low-income taxpayers to contribute to a qualified retirement account. (Backgrounder on the Senate legislation)
  • The bill would be paid for by extending the current $10,000 cap on the deductibility of state and local taxes for three years, or however long is needed. The deduction is scheduled to expire at the end of 2025.  

House Republican Outline 

R Ways and Means Brady graphic

  • On June 14, House Ways and Means Committee Republicans released a one-page document outlining a six-point plan to combat inflation. The GOP calls for repurposing $170 billion in unspent pandemic federal aid for deficit reduction while pursuing permanent tax relief. The list of principles also urges policymakers to reject the Biden administration’s proposed overhaul of the tax code affecting corporations and wealthy individuals. (BGov, June 15)
  • The proposals to fight inflation by congressional Republicans seek to provide a contrast to the approach by Democrats, which includes cutting prescription drug costs and increasing taxes on oil company profits. (PoliticoPro, June 14) 

The Roundtable’s Tax Policy Advisory Committee (TPAC) met today in conjunction with The Roundtable’s 2022 Annual Meeting to discuss policy issues affecting the taxation of commercial real estate. (See story above). 

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Coalition Requests Changes to Treasury Tax Regulations Affecting Outbound Foreign Real Estate Investment

Posted on by Trey Jackson

IRS BuildingThe Real Estate Roundtable and four other national trade groups submitted recommendations to modify proposed Treasury regulations regarding partnerships and other pass-through entities that own direct or indirect interests in a passive foreign investment company (PFIC). (Read PFIC comment letter, April 25)

Passive Foreign Investment Companies and Proposed Regulations

  • A PFIC is a foreign corporation that derives a significant share of its income from passive sources or primarily owns assets that are held for the production of passive income, including capital gains, interest, dividends and rent. PFICs commonly arise when structuring investment funds and pooling capital to invest in foreign real estate.
  • Special U.S. tax rules apply to PFIC income. The rules generally accelerate the recognition of PFIC income by PFIC shareholders, or impose an interest charge if the income is deferred. PFIC shareholders can elect which tax regime to apply.
  • Recently proposed Treasury regulations would require any U.S. partner of a partnership that directly or indirectly owns a PFIC to make PFIC-related tax elections at the individual partner level, in addition to other changes.

Recommended Changes

PFIC Coalition logos

  • The April 25 coalition letter suggests the proposed rules would result in an exponential increase in the number of separate PFIC filings, greater administrative burdens and a higher cost of compliance. The rules would also lead to inadvertent failures to file elections since small investors are less well-versed in the PFIC rules than the investment partnerships and their advisors.
  • The letter also urges the IRS to allow partnerships to make PFIC elections at the entity level for all partners, including on behalf of indirect partners who own their interest through an upper-tier partnership. A partnership could make the election for a partner through a partner’s grant of a power of attorney to the general partner of the partnership. An implicit delegation of this authority (e.g., the authority in the partnership agreement to file tax returns) would be sufficient.
  • “If Treasury incorporates these changes,” said Real Estate Roundtable President and CEO Jeffrey DeBoer, “the end result will be less friction and expense for real estate funds as they raise and deploy capital for productive real estate investment.”

Other signatories of the letter include the Alternative Investment Management Association, the American Investment Council, the Managed Funds Association, and the S Corporation Association.

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State and Local Tax (SALT) Deduction Relief in Doubt as Democrats Seek to Narrow Build Back Better Act

Posted on by Trey Jackson

SALT by congressional district - CRS image

Several Democratic Senators favor retaining current law as it relates to the deductibility of state and local taxes and eliminating SALT relief from any pared down version of the Build Back Better (BBB) Act, The Hill reported on Jan. 26. 

SALT Fix

  • Speaking both on the record and anonymously to The Hill, policymakers said that they expect proposed changes to SALT will be cut from the next generation of the BBB Act, despite the issue being a top priority of Senate Majority Leader Chuck Schumer (D-NY).
  • The 2017 Tax Cuts and Jobs Act limited the itemized, individual deduction for state and local taxes (including property taxes) to $10,000. The provision does not restrict the deductibility of business taxes paid or incurred at the entity level. The limitation expires after 2025. (The SALT Cap: Overview and Analysis, Congressional Research Service, March 6, 2020)
  • Sen. Joe Manchin (D-WV), a key centrist vote in the Senate, has not publicly stated his position on SALT relief, but reportedly has sent signals he is not a supporter. (Politico, Jan. 27 and Roll Call, Jan. 28)

SALT & BBB

Build Back Better phone on map

  • If negotiations resume, congressional Democrats are expected to reduce the size and scope of the BBB Act. Manchin recently said he prefers “starting from scratch” after Democratic negotiations on the House-passed $2.2 trillion package collapsed in December. (Roundtable Weekly, Jan. 21)
  • There are also challenges in the House, where Democrats have only a four-vote majority. “No SALT, no deal,” wrote New York Rep. Tom Suozzi and New Jersey Reps. Josh Gottheimer and Mikie Sherrill in a joint statement last week. “If there are any efforts that include a change in the tax code [in a revised BBB proposal], then a SALT fix must be part of it.” (CNBC, Jan. 21)

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Real Estate Roundtable and Other Stakeholders Urge Congress to Extend Expiring Opportunity Zone Tax Incentive Deadlines

Posted on by Trey Jackson

IRS OZ image

Congress should extend expiring tax incentives that promote investment and jobs in Opportunity Zones (OZs) as soon as possible, according to a letter to Congressional leaders from a diverse coalition of 22 organizations that includes The Real Estate Roundtable. (Dec. 21, 2021 coalition letter) 

OZ Tax Incentives Expiration 

  • Established in the Tax Cuts and Jobs Act of 2017, OZs mobilize capital for new businesses and economic activities in targeted, low-income areas. A significant share of OZ investment has gone towards productive real estate projects that create new, sustainable sources of local tax revenue and increase the supply of affordable and senior housing.
  • Taxpayers that invest existing capital gains in a qualified opportunity fund are potentially eligible for tax benefits on both the prior gain and any gains that relate to the opportunity fund’s investments. However, the deadline for OZ investments to qualify for a partial capital gains exclusion with respect to gains that are deferred and rolled into an opportunity fund expired on December 31, 2021. 
  • Specifically, in order for an investor to qualify for a 10 percent step-up in the basis of a prior investment, the gain must be held in an opportunity fund for five years before it is recognized and tax. Under the OZ law, gains rolled into an opportunity fund are recognized at the end of 2026. Therefore, unless the gain was invested in an opportunity fund by then end of 2021, it will be taxed prior to meeting the five-year requirement.
  • The coalition letter urges Congressional leaders to extend the 10 percent step-up deadline through the end of 2023 and the deferred gain recognition date until the end of 2028. 

OZ Impact 

OZ image construction

  • The coalition letter noted that the White House Council of Economic Advisors in 2020 estimated Opportunity Funds had raised $75 billion in private capital in the first two years following the incentives’ enactment. The Council also estimated this capital could lift one million people out of poverty and decrease poverty in OZs by 11 percent.  (The Impact of Opportunity Zones: An Initial Assessment, Aug. 2020)
  • More recently, the U.S. Government Accountability Office estimated that 6,000 opportunity funds with more than 18,000 partners or shareholders invested $29 billion in OZs in 2019. (GAO: Opportunity Zones: Data on Investment Activity) 

OZ Program Improvements 

  • The coalition also supports congressional improvements to OZ tax incentives, such as enhanced information reporting, data collection, transparency, and lowering the substantial improvement threshold to cover a broader range of real estate rehabilitation and redevelopment projects.
  • Congressional tax-writing committees have not taken up bipartisan legislative proposals to improve the OZ program. 

The Roundtable’s Tax Policy Advisory Committee (TPAC) will discuss the OZ tax incentives and other real estate-related tax policies during their next meeting on Jan. 26 in conjunction with The Roundtable’s State of the Industry business meeting.  

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Roundtable Encouraging Congress to Ensure Fair Treatment of Pass-Through Businesses in Final Reconciliation Bill

Posted on by Trey Jackson
House Ways and Means Committee graphic


As negotiations continue on a multi-trillion reconciliation bill, The Real Estate Roundtable is urging lawmakers to ensure that any final agreement on tax changes treats pass-through businesses fairly and equitably.

Why It Matters

  • The reconciliation bill approved by the House Ways and Means Committee excluded several real estate-related tax proposals put forward by the Biden administration that could cause unnecessary harm to job creation, real estate values, and local communities that rely on property tax revenue. These proposals included restrictions on like-kind exchanges, repealing the step-up in basis of assets at death, and tax parity between ordinary income and capital gains. (Roundtable Weekly, Sept. 17)
  • At the same time, through the combination of several, independent tax changes aimed at upper-income taxpayers, the current reconciliation bill in the House would raise the top marginal income tax rate on many pass-through business owners from 29.6% today to 46.4% (a 57% increase). 

Contact Congress

  • The Roundtable believes this level of increase on pass-through businesses was unintended by Members of Congress and could undercut the bill’s own objectives of stimulating job growth, improving housing availability, and promoting investment in economically struggling communities, among other priorities.
  • See The Roundtable’s detailed summary on “Pass-Through Businesses and the Reconciliation Bill.” 

  • “Small and closely held businesses are the principal drivers of job growth and entrepreneurial activity in our economy.  The increase in the tax burden on pass-through businesses is disproportionately large relative to the tax changes for large, multinational corporations. The bill would create a historically high differential in the tax rates between pass-throughs and C corps and could put pass-through businesses at a competitive disadvantage in the economy. We do not believe this was the intent of the bill drafters,” said Real Estate Roundtable President and CEO Jeffrey DeBoer.  

  • The dramatic increase in the pass-through tax rate results in part from capping the 20% deduction on pass-through business income (section 199A).  Other changes include increasing the top tax rate on ordinary income from 37 to 39.6 percent, expanding the scope of the 3.8% tax on net investment income, and imposing a 3% surtax on incomes above $5 million.
     
  • As currently proposed, the rate differential between pass-throughs (46.4%) and C corps (26.5%) would be 20 percentage points, more than twice the level of any period over the last four decades. Real estate partnerships constitute half of the four million partnerships in the United States.

Roundtable members and others are encouraged to reach out to their Representatives and contact their Senators to urge them to preserve the 20% deduction for pass-through business income (section 199A), which is directly tied to hiring workers and investing in capital equipment and property.  Modest adjustments in the legislation would ensure that pass-through businesses will continue contributing to economic growth, innovation, and job creation. Additional information and talking points can be found here.  

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House Ways and Means Committee Advances Historic Legislation with Safety Net Expansion and $2.1 Trillion in Tax Increases

Posted on by Trey Jackson

House Ways and Means Committee graphic

The House Ways and Means Committee voted to advance legislation that would expand benefits for low-income families, invest in affordable housing and other Democratic priorities, and finance the initiatives with a $2.1 trillion tax increase that primarily falls on high-income individuals, pass-through businesses, and corporations. The legislation excludes several tax proposals put forward by the Biden administration and Senate lawmakers that would increase the tax burden on real estate. (Ways and Means news release and markup resources) 

  • Real Estate Roundtable President Jeffrey DeBoer stated, “The House Ways and Means Committee’s proposals include significant tax increases on corporations and income received by upper income taxpayers, and not on business activities like real estate.  Even so, the combined tax hikes on income received from pass-through entities could threaten job creation and business expansion. As the bill moves forward, we encourage Congress to review the suggested tax hikes, particularly those on pass-through businesses, and work to ensure that unnecessary and unintended damage is not done to the economy. Substantial commercial real estate activities are conducted by pass-through entities and these activities create jobs, support retirement savings, and boost tax revenue for critical public services provided by local governments. The Roundtable is encouraged, yet cautious, at this still relatively early stage of the legislative process. Further changes may be on the horizon, both positive and negative.” 
  • Tax issues affecting CRE are summarized in The Roundtable’s summary on Real Estate Tax Issues and Budget Reconciliation Legislation. The real estate tax issues addressed by the W&M Committee include: 

Ways and Means markup


Real Property Like-Kind Exchanges (Section 1031) 

  • The bill wisely preserves taxpayers’ ability to defer capital gain when exchanging real property for another property of like kind. 

Step-Up in Basis and Taxation of Gains at Death 

  • The bill preserves the step-up in basis that applies to appreciated gain when real estate is transferred from a decedent to an heir. The bill does not impose capital gains tax on appreciated real estate when transferred by a decedent or donor.

Capital Gains 

  • The bill increases the maximum capital gains rate from 20% to 25%. The 3.8% investment tax is maintained and extended to all taxpayers, thus making the effective capital gain tax rate 28.8%. The President’s budget proposed increasing the capital gains rate to 39.6% to create parity between the tax rate on ordinary income and capital gains.

Real Estate Carried Interest 

  • The bill generally extends from 3 years to 5 years the holding period for partnership gains attributable to a profits interest to qualify for the long-term capital gains rate. However, the bill preserves the shorter 3-year holding period for capital gain related to a real property trade or business.  The President’s budget proposed converting all carried interest income derived from a profits interest in a real estate partnership to ordinary income.

Pass-Through Business Income Deduction (Section 199A) 

  • The bill limits the maximum deduction available for pass-through business income under section 199A to no more than $400,000 for an individual and $500,000 in the case of a joint return ($2.5 million).

Net Investment Income Tax 

  • The bill would apply the 3.8% net investment income tax to income derived from a trade or business, capital gain, dividends, interest, and rental income regardless of whether the taxpayer is active or passive in the activity.

Other Tax Issues 

  • Other tax issues addressed by the committee included affordable housing, infrastructure financing, grantor trusts, deductibility of active losses and REIT constructive ownership rules. These issues are also summarized in The Roundtable’s summary on Real Estate Tax Issues and Budget Reconciliation Legislation.
  • House Speaker Nancy Pelosi (D-CA) is expected to address a provision affecting the $10,000 limit on state and local deductions (SALT) before a final bill is assembled for a floor vote. (CNBC, Sept. 15)
  • The committee’s proposals on clean energy incentives are detailed in the Roundtable Weekly story below on energy policy. 

The House is expected to try to resolve major differences between their final bill and the Senate’s version before voting on the package. Senate Majority Leader Chuck. Schumer (D-NY) has not set a formal deadline for the Senate to complete its work but he said Tuesday “there’s going to be a lot of intense discussions and negotiations over the next few weeks.” (RollCall, Sept. 14) 

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House Ways & Means Scheduled to Mark-up Revenue Measures Next Week

Posted on by Trey Jackson

Ways and Means Committee wiki

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) 

Revenue Raisers 

Tax issues grid choice image

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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Tax Proposals Under Scrutiny as Timetable Moves Up for Mammoth Reconciliation Bill

Posted on by Trey Jackson

The unanticipated commitment by Speaker Pelosi to allow a stand-alone vote on the bipartisan Senate infrastructure bill no later than September 27 has scrambled the Congressional calendar and put increased attention and focus on the potential for major tax changes.

Why It Matters

  • House Leaders are urging committees, including the powerful Ways and Means Committee, to complete their work on the $3.5 trillion budget reconciliation bill by September 15.  Ways and Means Chairman Richie Neal has indicated a formal mark-up could start the week of Sept. 6 and continue 4-5 days.  (E&E Daily, Aug. 25)
  • Accelerating the consideration of the $3.5 trillion reconciliation bill may allow its supporters and advocates to retain political momentum for the massive package of social safety net, environmental, tax, and other policies—momentum that could be lost once the infrastructure bill is sent to the President.
  • The shortened timetable, however, puts pressure on lawmakers who are considering complex changes to the tax code that would normally require hearings, extended debate, and substantial vetting.  

Industry Concerns

  • The Real Estate Roundtable has raised concerns regarding a number of proposals in the President’s plan that would raise the tax burden on capital formation, undermine property values and the functioning of real estate markets, and harm the industry’s ability to create jobs and support local communities through property tax revenue.  These proposals include restrictions on like-kind exchanges, an elimination of the reduced tax rate on capital gains, and the taxation of unrealized gains at death.
  • On Tuesday, the accounting industry expressed strong concerns with the President’s proposed changes to capital income. The letter noted that, “[t]he taxation of the capital gains on gift or death in many cases would be the third time that the gain is taxed.”  Imposing immediate tax on transfers by gift or death is an unreasonable requirement when the transfers are non-liquid assets such as real estate, business interests, etc., because it may require the forced liquidation of some or all of the assets transferred,” they continued.    
  • Last Friday, the Tax Foundation challenged the Administration’s claim that their tax proposals would spare 97 percent of small businesses.  The organization analyzed the most recent IRS data and concluded the President’s proposals would reach more than half of pass-through business income (because 54% of pass-through income is earned by taxpayers making more than $500,000).
  • At the same time, lawmakers are mobilizing to ensure that the $3.5 trillion bill includes priorities such as increased investment in affordable housing.  On Thursday, 111 House Democrats led by Reps. Suzan DelBene (D-WA) and Don Beyer (D-VA) wrote to Speaker Pelosi urging that the legislation include a significant expansion of the low-income housing tax credit.

Contact Congress