A law book with a gavel - Tax law

Tax Reform Set to Heat Up the Fall Season

Lawmakers will be out of Washington until after Labor Day. When they return from their districts, they’re expected to move on from their failed attempt at health care reform, and instead focus on trying to change the tax code. But other spending issues are also looming.

Health policy reform failed after Republicans tried to implement it through a process called reconciliation, which would have allowed a bill to pass the Senate without any Democratic votes. That very process helped assure that the Affordable Care Act could pass the Senate in 2010, when every Republican voted against it. This more recent attempt failed, however, when three of the 52 Republican Senators voted against the reform bill.

When it comes to tax reform, the Trump administration is trying to bring at least a few Democrats on board. “At a mid-June dinner at the White House with four centrist House Democrats, President Donald Trump expressed interest in a bipartisan package combining tax reform with infrastructure spending,” sources tell Politico. The White House is reportedly reaching out to as many as 15-20 House Democrats.

In that spirit, some 45 Senate Democrats signed a letter to the president, Senate Majority Leader Mitch McConnell and Senator Orrin Hatch, the top Republican on the tax writing committee. “We are confident that, by working together, we could modernize our tax system to increase working families’ wages, improve middle-class job growth, promote domestic investment, modernize our outdated business and international tax system and put in place sound fiscal policy,” the letter says.

Further, the discussion on tax reform, according to Senate Minority Whip Dick Durbin, “is coming at just the right time from the Democratic perspective.” Durbin told the Washington Examiner: “We hope to have constructive conversations.”

But McConnell seems less confident it will be possible to work across the aisle. “I don’t think this is going to be 1986, when you had a bipartisan effort to scrub the code,” he told reporters. “Most of the principles that would get the country growing again, they [Democrats] are not interested in addressing.” There’s also the issue of timing. Lawmakers are scrambling to finish a bill before the end of the year, in part so they can focus on the midterm elections in 2018.

As for the process, Bloomberg reports that a group of lawmakers is considering ways to make some proposed tax cuts permanent, while leaving some others to expire in a few years. That might allow the narrow Republican majority to move a bill forward using the reconciliation process. It’s an approach that might also be supported by the administration. “Permanent is better than temporary, and temporary is better than nothing,” Treasury Secretary Steven Mnuchin told lawmakers in May.

While they’re looking for places to enact reform, lawmakers should keep in mind that “there are many parts of the tax code that are boosting the economy,” NAIOP President and CEO Thomas J. Bisacquino wrote in The Hill. “These provisions exist because they work. They’re not ‘loopholes,’ but are actually incentives to encourage investment and growth.” One example he cites is 1031 exchanges, which allow owners to swap similar properties without immediately paying capital gains taxes.

However, before they can focus on reforming the tax code or even reducing tax rates, lawmakers will have to find a way to raise the debt ceiling, the amount the federal government allows itself to borrow. It’s expected to hit the limit around Sept. 30, according to the Congressional Budget Office. Some lawmakers want a “clean” increase in the debt limit, meaning no conditions. Others are expected to press for spending cuts to offset the debt limit increase.

Congress must also pass a budget before the fiscal year ends on Sept. 30, or pass a continuing resolution (CR) to fund the federal government temporarily. If lawmakers cannot agree on a CR, there could be a partial government shutdown.

“September is going to be a very difficult month,” Rep. Mark Meadows of North Carolina told The Hill last month. Meadows is the leader of the Freedom Caucus, a group of about 30 conservative lawmakers that have frequently disagreed with House leadership. “I mean, obviously all of this is coming into play right away, all the fiscal issues and deadlines are going to make it extremely difficult to get everything done in a piece-by-piece basis.”

Meadows does, however, expect that Congress will end up passing a clean debt limit increase. Throughout the process, NAIOP will working with lawmakers and staffers to protect the interests of the CRE industry.

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