Leaders of key committees in both the Senate and House gear up to begin building support for tax reform efforts. While details of specific proposals are unknown at the moment, congressional leaders are considering some important changes in the tax code that would affect apartment firms.
Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Orrin Hatch (R-Utah) sought to advance their efforts to enact tax reform on June 27 by sending a letter to finance committee members, asking them to consider a framework that removes all tax expenditures from the tax code. Tax expenditures include credits and deductions, including those for mortgage interest, capital gains and dividends, retirement savings, charitable giving and education. Senators are requested to inform the committee by July 26 of specific tax expenditures they seek to retain. Senators Baucus and Hatch did not set a date for potential committee action.
On the House side, Ways and Means Committee Chairman Dave Camp (R-Mich.) continues to develop his own proposals for tax reform and has indicated his desire to mark up legislation later this year. Beginning in July, Chairmen Baucus and Camp are expected to hold town hall meetings and events nationwide to build popular support for tax reform.
The prognosis for tax reform is unclear with several issues awaiting resolution. Congress must determine whether a reformed tax system should raise additional revenue. While President Obama and many congressional Democrats would like to see tax reform generate additional funds, many Republicans could oppose revenue increases given that the American Taxpayer Relief Act, enacted in January 2013, raised $675 billion in new revenue. In addition, it is uncertain whether policymakers are willing to curtail popular credits and deductions in favor of a lower tax rate.
The Baucus-Hatch framework is designed to illustrate the tradeoff between credits and deductions and overall tax rates. Estimates of proposals offered by the National Commission on Fiscal Responsibility and Reform-also known as the Simpson-Bowles Commission-indicate that if all tax expenditures were eliminated, the top marginal tax rate could fall to 23 percent from 39.6 percent. However, it is nearly inevitable that policymakers will seek to reinsert certain tax expenditures. Simpson-Bowles, for example, offered a plan that would retain incentives for mortgages, charitable giving and retirement that would result in top tax rates of 28 percent.
NMHC/NAA have identified key priorities for the apartment industry and continue to work with congressional leaders to ensure that these issues will be reflected in any tax reform effort. These include: (1) ensuring flow-through entities (e.g., LLCs, partnerships, and S Corporations) that dominate our industry are not called upon to finance a corporate tax rate cut; (2) maintaining the full deductibility of business interest; (3) retaining carried interest; (4) protecting the Low-Income Housing Tax Credit; (5) safeguarding current-law estate tax rules; and (6) retaining and modifying the tax deduction energy efficient commercial buildings.
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