News Type: Roundtable Weekly

Senate action on the House-passed multitrillion dollar Build Back Better (BBB) Act (H.R. 5376) stalled this week as Democrats continued negotiations on the scope and scale of the legislation. (The Guardian, Dec. 16 and BGov, Dec. 15).

BBB Issues

• A significant hurdle to progress on the BBB bill are ongoing negotiations between President Biden and congressional leadership with Senate Energy Committee Chairman Joe Manchin (D-WV) – one of the key Democratic centrist swing votes needed to pass the bill under budget reconciliation rules. (CNBC, Dec. 15)
• “The talks between [Biden] and Manchin have been going very poorly. They are far apart,” according to a Dec. 15 Politico report. The article also quotes Sen. Tim Kaine (D-VA), who stated, “[Biden and Manchin] may have very different views about timing. It’s less about whether, than about when and how much.”
• Democrats also remain split over how BBB legislation would resolve policy issues such immigration and SALT – the limit on the federal deduction for state and local taxes. (Bloomberg, Dec. 13)
• Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA) predicted this month that Congress would pass the BBB Act before Christmas. (Wall Street Journal, Dec. 15 and AP, Dec. 16)
• President Biden acknowledged in a statement yesterday that his BBB agenda is unlikely to pass this year and that Democrats will work to finish it “over the days and weeks ahead.” (The White House, Dec. 16)

BBB and CRE

• Senate Finance Chairman Ron Wyden (D-OR) on Dec. 11 released statutory language for BBB Act measures that fall under the Finance Committee’s jurisdiction, including tax provisions. 
• The committee’s language does not include a complex tax proposal that would impose mark-to-market taxation on annual, unrealized gains. Chairman Wyden’s specific legislative proposals to impose an income limit on the sec. 199A pass-through deduction (July 2021), tax carried interest as ordinary income (Aug. 2021) and reform partnership taxation (Sept. 2021) are also excluded. These proposals, as introduced, could have a negative impact on real estate investment, entrepreneurial risk-taking, jobs, and local communities. 
• Additionally, the current BBB Act would not limit like-kind exchanges, increase the 20% capital gains tax, or repeal the step-up in basis of assets at death. The key tax issues in the bill are addressed in a Roundtable comparison of the tax-related provisions in the BBB package. (Roundtable Weekly, Oct. 29)
• Clean energy tax credits make up the most significant portion of the BBB Act’s climate policies. The Roundtable supports several improvements to the green tax provisions aimed at extending them to certain technologies (e.g., thermal energy storage), ensuring that EV charging incentives cover stations employed in widely available but non-public locations (e.g., apartment building parking lots), and incentivizing building electrification through the use of heat pumps.
• The Roundtable on Nov. 16 sent a letter to congressional tax writers detailing five recommendations that would improve green energy tax provisions in the BBB Act affecting real estate. (Roundtable Weekly, Nov. 19)

Debt Ceiling and Fed Action

• President Biden yesterday signed legislation to raise the debt ceiling by $2.5 trillion, averting default on the nation’s debt and pushing the issue beyond the November 2022 mid-term elections. (Investopedia, Dec. 16)
• The debt ceiling bill cleared the Senate Dec. 15 on a party-line vote of 50-49, and the House passed it the following morning on a mostly partisan 221-209 tally. (The Hill and CNBC, Dec. 16)
• Federal Reserve Chairman Jerome Powell on Wednesday announced the Fed will wind down its bond-buying program by March instead of June – paving the way for potential interest rate hikes starting in the spring. Powell said the Fed could raise interest rates three times next year as it responds to elevated inflation. (Commercial Property Executive, Dec. 17 | GlobeSt, Dec. 16 | Wall Street Journal, Dec. 15)

Monetary and fiscal policy will be a focus of discussion at The Real Estate Roundtable’s all-member State of the Industry Meeting on Jan. 25-26 in Washington, DC.

#  #  # 

The Senate approved a procedural bill last night to raise the national debt ceiling without the risk of a Republican filibuster. The House and Senate plan to consider a subsequent bill within days that will increase the debt limit by more than $30 trillion, thereby avoiding a national default and delaying the next fiscal cliff until after the November midterm elections. (Wall Street Journal | Punchbowl News | Reuters, Dec. 9)

Hurdles Await BBB Act 

• The expected increase to the debt limit will also allow Senate Democrats to focus on the House-passed $1.7 trillion Build Back Better (BBB) Act.
• Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA) this week predicted that Congress will pass the social and climate package before Christmas. However, numerous hurdles could push congressional action on the BBB Act into 2022. (The Hill, Dec. 8)
• Today, the Congressional Budget Office reported that the BBB Act would add $3 trillion to the federal deficit over the next 10 years if its major provisions are made permanent.
• Senate Energy Committee Chairman Joe Manchin (D-WV), below, is one of the key Democratic centrist swing votes needed to pass the BBB Act under budget reconciliation rules, which allow Congress to pass legislation with only 51 votes in the Senate.

  

•  Manchin reiterated his reluctance to vote for the package this week, stating “the unknown” of inflation “is much greater than the need” for Democrats to move on their climate and social spending bill now. (Marketwatch, Dec. 8 and Wall Street Journal, Dec. 7)
• Additionally, the Senate parliamentarian is reviewing the BBB Act to determine if it conforms to reconciliation rules, which require that all the bill’s provisions directly impact the federal budget. (Indivisible, The Senate’s Byrd Rule)
• Another significant hurdle is whether potential changes to the BBB bill can resolve existing policy differences among Democrats on the state and local tax deduction (SALT), Medicare expansion and immigration. (CQ and BGov, Dec. 9)
• If the Senate passes a bill with changes, it likely will need to go back to the House for another vote before it reaches President Biden’s desk. (Roundtable Weekly, Nov. 19) 

BBB and CRE 

• The current BBB bill – when compared to the President’s budget and the bill passed by the House Ways and Means Committee in September – reflects major progress on a number of tax issues important to real estate and prioritized by The Real Estate Roundtable. (Roundtable Weekly, Oct. 29)
• The current bill would not limit like-kind exchanges, increase the 20% capital gains tax, or cap eligibility for the 20% pass-through business income deduction. It also does not include changes in the tax treatment of carried interest or repeal the step-up in basis of assets at death. The key tax issues in the bill are addressed in a Roundtable comparison of the tax-related provisions in the BBB package.
• Clean energy tax credits make up the most significant portion of the BBB Act’s climate policies. The Roundtable on Nov. 16 sent a letter to congressional tax writers detailing five recommendations that would improve green energy tax provisions in the BBB Act affecting real estate. (Roundtable Weekly, Nov. 19) 

The BBB Act’s potential impacts on tax and climate policy issues of importance to CRE will be topics for discussion at The Roundtable’s Jan. 25-26 State of the Industry Meeting in Washington, DC.  

#  #  #