• The new budget proposes to tax the wealthiest households on their unrealized capital gains, including real estate. The so-called “Billionaire minimum income tax” would impose a minimum levy of 20 percent on a comprehensive tax base that includes both realized income and the unrealized annual appreciation of a taxpayer’s assets.
• The new tax would apply to future appreciation of assets and all unrealized, built-in gains at the time of enactment. The tax on pre-enactment, built-in gains would be collected over a 9-year transition period.
• Although marketed as a tax on “billionaires,” the proposal would apply to any taxpayer with $100 million or more in wealth. This initial high threshold arguably represents a first step towards a wealth tax regime with much broader application. The original income tax applied to the top 1/3 of one percent of the U.S. population and now applies to over 150 million American households.
• In certain cases, holders of illiquid assets like real estate could elect to defer the minimum tax until the property is sold, provided they pay an additional charge.
• The budget leaves many of the most difficult questions unanswered, including:  
  • How would the tax survive a constitutional challenge on the grounds that direct taxes must be apportioned among the states by population?
  • Why would taxpayers continue to make patient, long-term investments, knowing that they could be taxed before the investment generates cash income?
  • Will much of the tax burden fall on noneconomic inflationary increases in asset values? 
  • How will the IRS administer the tax without building a highly intrusive compliance system that is based on subjective valuation measures?

• Another new revenue proposal in the budget relates is to tax depreciation recapture at ordinary income rates. The provision generally would treat gain on real estate held for more than one year as ordinary income to the extent of cumulative depreciation deductions taken in tax years beginning after 2022. Depreciation recapture is currently taxed at a rate of 25 percent.

• The White House budget also includes tax proposals recycled from last year that failed to pass congressional budget negotiations, including:
  • repealing the deferral of gain from real estate like-kind exchanges;
  • taxing long-term capital gains at ordinary income rates;
  • taxing carried interest in real estate partnerships as ordinary income; and
  • treating transfers of property at death as realization events subject to capital gains tax.

• The spending and revenue proposals faced immediate pushback on Capitol Hill by Republicans and Democrats, including Sen. Joe Manchin (D-WV), a key centrist who stated he opposes President Biden’s 20% minimum tax on unrealized capital gains for households worth at least $100 million. (CQ News, March 29)
• Manchin told The Hill, “You can’t tax something that’s not earned. Earned income is what we’re based on. Everybody has to pay their fair share, that’s for sure. But unrealized gains is not the way to do it, as far as I’m concerned.”
• Manchin also recently stated he is open to negotiating some limited remnants of the defunct Build Back Better (BBB) Act, with a focus on energy-related incentives, prescription drug costs ,and deficit reduction. (Business Insider, March 24) 

• Biden budget proposals impacting other aspects of The Roundtable’s 2022 Policy Agenda include:  
  • Energy and Climate – the president’s budget request outlines $44.9 billion for increased spending on several climate-related initiatives, yet does not address specific clean energy provisions that were part of last year’s BBB bill. Instead, a "deficit neutral reserve fund" is noted in the FY23 budget to accommodate a potential future deal on clean energy legislation with Democratic Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-AZ). (E&E News, March 28 and Axios Generate, March 29)
  • Affordable Housing – the FY23 budget seeks to ease the nation's affordable housing shortage with $50 billion in federal funding for housing construction and supply, including $35 billion for state and local housing finance agencies. (PoliticoPro, March 28)
  • SEC Reporting Requirements – The Securities and Exchange Commission would receive $2.15 billion in the FY2023 budget proposal, an 11.4% increase from FY2021 (BGOV, March 28). The SEC has ramped up its activity recently with proposed rules on reporting requirements for investment advisers, climate risks and cybersecurity incidents that may have significant impacts for the real estate industry. 

• The release of President Biden’s second budget launches the annual congressional appropriations process, which aims to fully fund the FY23 government budget starting Oct. 1. The prospects for certain tax increase proposals before the Nov. 8 mid-term elections are highly uncertain. (Politico, March 28 – “Here’s what’s in Biden’s $5.8 trillion budget proposal – and what’s next”) 

Real Estate Roundtable members received a survey earlier today that will help formulate comments in response to a proposed rule issued on March 21 by the U.S. Securities and Exchange Commission (SEC) regarding corporate disclosures of climate-related financial risks. (Roundtable Weekly, March 25) 

Roundtable Member Participation 

• The Roundtable requests that members respond to the SEC climate issues survey by COB April 11.
  
  
• Before submitting responses to the survey, members are encouraged to review The Roundtable’s fact sheet summarizing the SEC’s proposed rule.
  
  
• The survey sent today aims to obtain a high-level understanding of the existing practices and standards used by Roundtable members in assessing and quantifying the following:
  
  
  • greenhouse gas (GHG) emissions across their portfolios,
  • their buildings’ electricity use,
  • impacts to their real estate assets from floods and rising sea levels,
  • how they interact with their tenants on these matters, and
  • similar questions that will likely require registered companies to report on their climate-related financial risks.
    
    
• If any Roundtable member has questions about the survey, please contact Roundtable Senior Vice President and Counsel, Duane Desiderio.

SEC Climate Risk Proposal

• The proposed rule has no immediate effect. If the proposal is finalized, all companies registered with the SEC would be required to report, measure, and quantify “material” risks related to climate change in their annual Form 10-Ks and certain other filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
  
  
• Compliance would phase-in over the next several years. For example, registrants with a global market value of $700 million or more would need to comply first for filings in FY 2024 (covering FY 2023 emissions).
  
  
• “Limited assurance” from independent third party verifiers, regarding so-called Scope 1 and Scope 2 emissions, would be required for the first two compliance years. Thereafter, “limited assurance” would ramp-up to “reasonable assurance” at a level provided in a financial statement audit filed with a 10-K.
  
  
• Indirect “supply chain” emissions – known as “Scope 3” – are considered the most difficult emissions to measure and quantify. Under the SEC’s proposal, reasonable efforts to report on Scope 3 emissions would receive a “safe harbor” from certain liability under federal securities laws. Also, third-party verification of Scope 3 reporting would be optional. 

• Stakeholder input on the proposed rule is due to the SEC around May 20. Themes raised by The Roundtable in pre-rulemaking comments submitted last year will likely be addressed again in this latest round of public input. (Roundtable Weekly, June 11, 2021  and (Roundtable fact sheet, March 28)

The SEC proposal, formally titled “Enhancement and Standardization of Climate-Related Disclosures for Investors,” is considered a key component of the Biden Administration’s efforts to cut U.S. greenhouse gas emissions by as much as 52% (below 2005 levels) by 2030. (CBS-AP | Bloomberg | Axios, March 21)  

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Department of Transportation (DOT) Secretary Pete Buttigieg and White House Infrastructure Coordinator Mitch Landrieu on March 24 announced $2.9 billion in combined funding under a new infrastructure grant program. The new “Multimodal Projects Discretionary Grant” will allow all communities pursuing major transportation infrastructure projects to submit one application for three major DOT funding sources. (DOT Twitter, March 23) 

Surface Transportation Funding Expansion 

• DOT funds under the new program will be awarded on a competitive basis for surface transportation infrastructure projects that have significant national or regional impact, according to DOT’s March 22 Notice of  Funding Opportunity. (Transport Topics, March 24)
  
  
• Secretary Buttigieg said he expects to announce winners by the fall after receiving final applications by May 23. (Washington Post, March 23 and DOT Notice of  Funding Opportunity)
  
  
• Last November, the enactment of the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) includes more than $350 billion over five fiscal years for surface transportation programs. (DOT news release, Jan. 14)
  
  
• White House Infrastructure Chief Landrieu said about half of the IIJA’s $1.2 trillion will flow through the DOT during a presentation earlier this month at a Bipartisan Policy Center virtual forum. (Engineering News-Record, March 9)
  
  
• This week, an additional $105 billion for the DOT was included in President Biden’s FY2023 budget request (see story above). The combined funding sources are expected to expand DOT’s discretionary grant programs for large, complex infrastructure projects that may involve more than one state. (DOT FY23 Budget Highlights document) 

Gateway Project & IIJA 

• A March 28 announcement by DOT Secretary Buttigieg stated that the Administration’s budget recommends $4.45 billion to advance 15 major transit projects in FY2023. “This includes, for the first time, $100 million in recommended funding for the Hudson Tunnel commuter rail project, which is part of the Gateway Program, a series of strategic rail infrastructure investments along the Northeast Corridor.” (Railway Age, March 29 and The Center Square, March 30)
  
  
• The Roundtable has long supported federal transportation infrastructure investments to spur economic growth, support local communities and enhance America’s competitiveness. (Roundtable Weekly, Nov. 12, 2021)
  
  
• The Roundtable’s 2022 Policy Agenda states, “The IIJA allows $550 billion in new infrastructure investments, estimated to create around 2 million jobs per year over the next decade. This long-term investment in physical infrastructure can re-imagine how we can productively move people, goods, power and information from home to work, business to business, community to community – and building to building.”   

A guidebook to IIJA funding programs released on Jan. 31 provides a key tool for states and local governments to apply for federal grants, loans, and public-private partnership resources under more than 375 infrastructure investment programs.  (The Hill, Jan. 31 and Roundtable Weekly, Feb. 4) 

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