As budget negotiations continued this week in the House and Senate, President Donald Trump met with Republican lawmakers on Thursday to discuss his tax priorities.

Tax Talks

• White House Press Secretary Karoline Leavitt told reporters that during a Thursday meeting with Republican lawmakers, President Trump outlined his tax priorities, including closing the “carried interest tax deduction loophole,” along with other provisions he wants included in a sweeping tax bill this year. (Bloomberg, Feb. 6 | Axios, Feb.7)

• President Trump also reiterated ideas he promoted on the campaign trail, including ending taxes on tips, overtime and Social Security payouts, as well as adjusting deductions for state and local taxes.

• Also this week, Congressional Democrats, led by Sen. Tammy Baldwin (D-WI), Rep. Marie Gluesenkamp Perez (D-WA), and Rep. Don Beyer (D-VA), introduced their own bill, the Carried Interest Fairness Act, to tax all carried interest income at ordinary tax rates.

• Appearing on Fox Business this week, Treasury Secretary Scott Bessent rejected the idea of a short-term extension of President Trump’s tax cuts, emphasizing they should be made permanent. (Fox Business, Feb. 5)

The Roundtable’s Position

• Since carried interest and its tax treatment first emerged as a controversial political issue in 2007, The Roundtable has consistently opposed legislative proposals to tax all carried interest at ordinary income rates.

• “The proposals would penalize entrepreneurs, slow housing production, and reduce economic mobility,” said Roundtable President and CEO Jeffrey DeBoer.  “The tax code has never, and should never, limit the reward for risk-taking only to deep-pocketed investors who have cash to deploy.” 

• “Real estate partnerships of all sizes across the country, small and large, use carried interest.  It is not compensation for services, and it is not comparable to wages. Carried interest is granted for the value a general partner adds beyond routine services, and it is a recognition of the risks a general partner takes, such as funding predevelopment costs, guaranteeing construction budgets and financing, and exposure to potential litigation,” said DeBoer. 

• Reversing well-established tax law and ending carried interest would raise little revenue. It would, however, reduce construction activity, especially higher-risk and much-needed projects like affordable housing, commercial developments in long-neglected neighborhoods, and the cleanup of contaminated land. 

• “Today, construction costs are higher than ever and financing remains challenging.  Now is not the time to raise taxes on U.S. real estate,” said DeBoer. 

Senate Proposal

• Senate Budget Chair Lindsey Graham (R-SC) announced today that his committee will convene Wednesday and Thursday to debate and vote on his budget resolution, setting the stage for a future vote on a bill focused solely on border security, defense, and energy. (Politico, Feb. 7)

• Their decision comes ahead of a meeting with President Trump at Mar-a-Lago today, where they also plan to discuss budget reconciliation. (Politico, Feb. 5)

• "This budget resolution jumpstarts a process that will give President Trump’s team the money they need to secure the border and deport criminals, and make America strong and more energy independent," Graham said in a statement.

• With a 53-seat majority, Senate Republicans have a bit more flexibility than the House, but still need to unite their party, as some members demand significant spending cuts.

• Senate GOP leaders plan to revisit the extension of the TCJA 2017 tax cuts later this year through a second reconciliation package.

House Proposal

• Several House Republicans met with President Trump on Thursday to resolve intraparty spending disputes. House Majority Leader Steve Scalise (R-LA) said the meeting was designed so House Republicans could “get in a place” where they could advance their stalled budget blueprint “next week.” (Politico, Feb. 7)

• Speaker Mike Johnson had aimed to release a framework today but now says Republicans will be working all weekend to finalize it.

GOP leaders have warned members that full details won’t be available until Monday, and a topline spending agreement remains elusive.

Over the past week, new developments have emerged regarding tariffs affecting China, Canada, and Mexico. As the situation continues to evolve, industry leaders are closely monitoring the status of these executive orders and their impact on affordable housing and the cost of essential construction materials.

State of Play

• Tariffs on these three nations went into effect on February 1. Currently, tariffs on imports from Canada and Mexico are on a 30-day hold, while the additional duties on Chinese goods are in effect. (WSJ, Feb. 4)

• Shortly after the announcements, President Trump reversed course and paused the tariffs on Mexico for one month following a conversation with Mexican President Claudia Sheinbaum. (ABCNews, Feb. 3)

• As part of the arrangement reached with the U.S., President Claudia Sheinbaum of Mexico said her country would deploy to the U.S.-Mexico border 10,000 members of the Mexican National Guard to focus on curbing the flow of fentanyl and illegal migrants into the U.S.  (New York Times, Feb. 3)

• After negotiations, Canadian Prime Minister Justin Trudeau and President Trump also agreed to a 30-day pause on the tariffs. Trudeau posted on X that the pause would occur “while we work together,” stating that his government would name a fentanyl czar, list Mexican cartels as terrorist groups and launch a “Canada-U.S. Joint Strike Force to combat organized crime, fentanyl and money laundering.” (APNews, Feb. 3) 

• Chinese and U.S. officials have yet to arrive at a similar agreement as Canada and Mexico. Beijing is readying an opening bid to try to head off greater tariff increases and technology restrictions from the Trump administration. (WSJ, Feb. 3)

• The Customs Tariff Commission of China’s cabinet, the State Council, imposed 15% tariffs on U.S. coal and liquefied natural gas imports, while raising levies on crude oil, agricultural machinery and certain vehicles. (WSJ, Feb.4)

Commercial Real Estate Impact

• Higher tariffs on Chinese steel and aluminum will increase structural material costs, while tariffs on Canadian lumber will impact framing and finishing costs.

• Additionally, any trade disruptions with Mexico could further strain budgets by limiting access to affordable cement, steel, and glass. (Capright, Feb.5)

• The National Association of Home Builders (NAHB) has raised concerns about how tariffs on materials like Canadian softwood and Mexican gypsum could significantly increase construction costs, thereby raising new home prices. (Axios, Jan. 31)

• Sixty-four percent of a home’s construction cost is building materials—27% of which are supplied by China, 11% by Mexico and 8% by Canada, according to data from the NAHB. (GlobeSt, Feb. 6) (Bloomberg, Feb.3)

• Imposing additional tariffs on these imports will raise material costs, ultimately driving up housing prices as the U.S. works to rebuild from natural disasters and address a severe housing supply shortage.

Tariffs and Clean Materials

• Congressional Republicans have joined Trump in exploring a possible carbon-specific clause in future rounds of tariffs, with the goal being to leverage data showing that the United States produces certain materials “cleaner” than foreign adversaries—namely China—and impose a fee on certain imports.

• 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. (RW, Jan.17)

• The Roundtable submitted comments on the Foreign Pollution Fee Act last month. The letter raises concerns regarding the impact of a carbon tariff on affordable housing construction, rebuilding after natural disasters, and technical issues on calculating “indirect emissions” associated with product manufacturing. The letter suggests forward-thinking refinements to the bill’s language.

As attention now shifts towards the new March 1 deadline, The Roundtable will continue to provide updates as the global trade situation evolves.

This week, the General Services Administration (GSA) announced its plan to sell half of the federal properties it leases—a decision that compounds President Trump’s return-to-office mandate and Elon Musk’s “buy out” offered to federal workers. (Newsweek, Feb. 5)

Why It Matters

• In 2024, GSA owned or leased more than 360 million square feet of space across more than 8,000 buildings nationwide, according to its most recent annual report.

• Just as federal workers are returning to offices—prompted by a Trump Executive Order —the “cumulative damage” of canceling federal leases under a Department of Government Efficiency (DOGE) led initiative “would be severe.” (GlobeSt, Jan. 30).

• A recent Trepp analysis quantifies the impact of GSA-leased space in the Chicago, Dallas, Los Angeles, New York City, Washington, DC, and other metro areas where federal tenancy accounts for significant percentages of total office inventory. (Roundtable Weekly, Jan. 31)

• If enough termination clauses are exercised, these markets could face economic disruption, with no guarantee of equivalent replacement tenants. (GlobeSt., Jan. 30)

• Last week, a memo was sent from GSA headquarters in Washington, DC instructing regional managers to begin terminating leases on all of the roughly 7,500 federal offices nationwide. Recently appointed acting GSA administrator Stephen Ehikian also announced two of the agency’s properties, including their headquarters building at 1800 F Street, NW,  will be listed for sale in a ‘first step’ to cutting real-estate expenditure. (AP News, Feb. 4).

• GSA recently appointed Michael Peters as commissioner of the Public Buildings Service (PBS), which will play a role in managing cost-effective workspace solutions for federal agency customers. Peters told staff in an email that non-Defense Department federal building space — both owned and leased — “should be reduced by at least 50%.”  (GlobeSt. Feb. 4)

What to Watch

• The extent of the GSA’s leased and owned property inventory will be affected by any reductions in the federal workforce.

• A federal judge on Thursday extended the deadline for government employees to decide on the Trump administration's "buyout" offer, delaying the original cutoff until Monday amid uncertainty over the evolving terms of the "Fork in the Road" email. (Axios, Feb. 6)

• As of Thursday, roughly 50,000 federal workers had accepted President Trump's deferred resignation offer ahead of the original deadline. (Washington Post, Feb. 6 )

• DOGE, led by Elon Musk, estimates the push for “deferred resignations” could shrink the federal workforce by 5% to 10%. (AP News, Jan. 28) (Axios, Jan. 28)

• The administration argued the delay was unnecessary and would disrupt workforce expectations, but said it would comply with the order.

The Roundtable will continue to keep members informed about further developments as the administration's policies evolve.

This week, the Fifth Circuit heard oral arguments in Sirius Solutions v. Commissioner, a pivotal case that could redefine the self-employment (SECA) tax obligations of many partners in real estate and other limited partnerships.

At issue is the longstanding statutory exception from SECA taxes for limited partners and recent efforts by the IRS to restrict the scope of the limited partner exception to only passive investors. 

Why It Matters

• The Fifth Circuit’s ruling in Sirius will set a precedent for future SECA tax cases, There are more than 441,000 limited partnerships in the U.S., with over 10 million partners. Nearly half of these limited partnerships are real estate partnerships.

• If the IRS position prevails, it could result in widespread tax increases on limited partners who engage in any level of activity, directly or indirectly, with respect to the partnership and effectively raise the tax burden on real estate businesses.

Roundtable Advocacy

• In August 2024, The Roundtable submitted an amicus brief to the Fifth Circuit and argued that the IRS’s interpretation, upheld by the Tax Court, is flawed, pointing to decades of state law that allows limited partners to provide services and still retain their limited partner status. (Roundtable Weekly, September 6)

• The brief emphasized that pre-1977 state court decisions and the IRS’s own 1994 proposed regulations contradict the government’s position.  The passive investor test is found nowhere in the statute and rests on a fundamental misunderstanding of state laws that Roundtable members and others have relied on for decades.  

Oral Arguments

• The latest oral arguments on Feb. 6 suggested some judicial skepticism about the IRS’s position. (TaxNotes, Feb. 7).

• The three-judge panel in the Fifth Circuit Court of Appeals raised the lack of statutory basis for a passive investor test under Section 1402(a)(13) and questioned whether taxpayers had adequate notice of the IRS’s evolving position. 

• The panel also challenged the workability of the IRS’s multi-factor test used to determine whether a partner is active or passive.  Judge Andrew Oldham noted that IRS forms and guidance have never mentioned a passive investor requirement and called into question whether taxpayers were ever clearly told how the government interprets the law. (Oral Arguments)

• The Roundtable brief was cited during the oral argument when Judge Oldham asked whether a taxpayer could be both a general partner and limited partner in 1977.

A decision is expected in the next few months. The Roundtable remains committed to protecting entrepreneurs’ ability to flexibly organize in partnerships and other pass-through entities that promote capital formation, risk-taking, and economic growth, and it will remain engaged as the SECA dispute moves forward.   

Scott Turner was confirmed Wednesday as Secretary of Housing and Urban Development (HUD) and outlined his top priorities, including privatizing Fannie Mae and Freddie Mac, streamlining HUD operations, reducing regulatory barriers to lower housing costs, and expanding opportunity zones to drive investment in underserved communities.

A HUD Overhaul

• Privatizing Fannie and Freddie: Turner has identified the privatization of Fannie Mae and Freddie Mac, the government-sponsored entities that guarantee most U.S. mortgages, as a top priority. (WSJ, Feb. 5)

• His department will collaborate with the Treasury Department and Congress on the process, though a clear timeline and level of commitment from the White House remain uncertain.

• While privatization could encourage more market competition, skeptics warn of potential disruptions in the $12 trillion mortgage market, including the risk of higher borrowing costs.

• Supply-side housing solutions: Turner has signaled a shift towards increasing housing supply to address affordability concerns, stating in his confirmation hearing that the U.S. “needs millions of homes” across all types of housing, including multifamily, single-family, and manufactured homes.

• The administration is expected to ease regulations that developers say have inflated construction costs, potentially rolling back Biden-era policies and implementing new incentives for affordable housing development. (Bisnow, Feb.6)

Opportunity Zones Revival

• Turner previously led the White House Opportunity and Revitalization Council (WHORC), and played a key role in driving the Opportunity Zones Initiative, and has committed to continuing this work. (AP News, Feb.5)

• The Roundtable 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.

• 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.

• Sen. John Barrasso, (R-WY) highlighted Turner’s work on opportunity zones, saying he had helped bring $50 billion to 8,700 distressed neighborhoods. “These investments helped to revitalize many forgotten communities,” Barrasso said on the floor before the confirmation vote. (Roll Call, Feb. 5)

• Turner’s confirmation signals a significant shift in federal housing policy, emphasizing market-driven solutions, regulatory rollbacks, and public-private partnerships.

The Roundtable continues to encourage policymakers to enact measures that will expand America’s housing infrastructure.  We also remain engaged in potential reforms to the GSEs to ensure that they continue to meet America’s housing finance needs.