At a luncheon event during the 2015 NMHC Board of Directors and Advisory Committee Fall Meeting, a number of members of Congress told attendees that comprehensive tax reform is unlikely to happen while the Obama Administration is still in office.
Senator Johnny Isakson (R-Ga.), a member of the powerful Senate Committee on Finance that has jurisdiction over taxes, said, “You’ll see comprehensive tax reform in 2017. It’s not going to get done now.”
But the lawmakers also agreed that laying the groundwork for reform starts now to be able to put the country on sound financial footing.
“You have to look at tax reform as a three legged stool and most folks aren’t willing to look at it that way,” said Senator Gary Peters (D-Mich.). “The three legs are to grow the economy, cut spending and generate more revenue. We need to start this now because it can’t wait for the next president. Tax reform will be the fourth leg and we better be thinking strategically with those other legs.”
Hanging in the balance is the ability to grow economically. “We are still the safest place in the world to have your money, but we’re not the best place to have your business when it comes to taxes and being penalized,” said Isakson. “Do no harm should be the first rule in tax reform - that is, grandfather-in the decisions made when the deal is made.”
He added that, when it comes to the Foreign Investment in Real Property Tax Act (FIRPTA), he predicts it will be in the tax extenders package when Congress finishes it at the end of the year. FIRPTA was passed in 1980 and taxes foreigners’ gains on the income they earn from, and then the sale of, U.S. real estate and other real property.
Isakson also said he thinks bonus depreciation will be part of the tax extenders package. Bonus Depreciation allows firms, including multifamily operators, to immediately deduct 50 percent of qualifying new equipment purchases, as opposed to having to depreciate the entire expense over a period of years. NMHC continues to strongly advocate for these strong incentives and others in the tax extenders package.
Specifically, tax extenders encompass the renewal of over 50 expired tax provisions, including important provisions supporting overall incentives to invest in multifamily, as well as specific incentives to support affordable housing and energy-efficiency. Last December, Congress retroactively extended tax extenders through 2014, so they must be addressed again this year to enable firms to claim them in 2015.
“I think [tax extenders] will pass at midnight on December 31st,” noted Isakson. “Necessity is the mother of invention. People are going to want to get home for the holidays.”
When getting back to the real chances of overall tax reform this year, Robert Diamond, special assistant to President Obama and director of private sector engagement, suggested lawmakers are not too far off in their predictions of it taking place in 2017. Specifically, Diamond emphasized that the Administration is focused on addressing reform through the business tax code.
“The President has put a plan on the table that would reform the business tax code,” he said. That includes reducing “the business tax rate to 28 percent.” But outside observers, and NMHC’s legislative team, have long outlined that prospects for tax reform in the near future are uncertain because of this very division between President Obama and Republican lawmakers. That is, they remain deeply divided over whether reform should focus on America’s largest corporations or be comprehensive, respectively.
An agreement would also have to be reached over how much additional revenue, if any, an overhauled system should raise. And members of both parties would have to be prepared to limit popular tax incentives to lower rates.
Ultimately, the multifamily industry and others watching reform closely can rest easy for now, according to Senate Majority Leader Mitch McConnell (R-Ky.) who, in a style true to his reputation, plainly laid out the reality.
“The chances of this Congress doing tax reform with this President is zero,” said McConnell.
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