Members of Congress, both the House and Senate, finally got the chance to do what they have been desperate to do for weeks: get out of Washington, D.C., and campaign full time for re-election. With the only must-pass legislation in September being a continuing resolution (CR) to keep the government running past Sept. 30, most of the other priorities and bills that were talked about last month by individual members of Congress or their party leadership were more for political posturing and messaging purposes, and not with the expectation of any actual, legislative achievement.
House and Senate Democrats, who are in the majority in each chamber and therefore control the calendar, felt little need to keep their members in town once the CR had been agreed to and passed last week. This was in large part because Democrats felt they had delivered tangible legislative accomplishments to their voters on many of their priorities, including on infrastructure, bipartisan gun legislation, and importantly, on climate change through passage of the Inflation Reduction Act of 2022 (“IRA”) in August.
The IRA was a budget reconciliation measure containing several of President Joe Biden’s priorities which had formed his “Build Back Better” agenda, having started out as a $3.5 trillion House resolution and finally being passed by the Senate as a much scaled-down version. Despite Democrats having control of both the House and Senate, the bill was in limbo primarily because Senator Joe Manchin (D-WV) was opposed to the overall size of the package and many of its provisions, and Senate Majority Leader Charles Schumer (D-NY) needed Manchin’s vote to pass the bill,. Once Schumer and Manchin nailed down an agreement that all Senate Democrats could support, passage was assured. The feeling among the Democratic caucus shifted from angry frustration and malaise at not being able to enact many of their priorities, to one of success on the legislative front.
NAIOP, its members, and our real estate allies were successful in our advocacy efforts on behalf of the commercial real estate industry during this period. Originally, the Biden administration’s tax proposals would have nearly doubled capital gains taxes, eliminated Section 1031 like-kind exchanges for almost all commercial real estate, changed estate law valuation rules that would have resulted in large tax increases on decedent’s properties, and raised taxes on real estate partnerships. None of those provisions were enacted. The Schumer-Manchin agreed-upon IRA that was first introduced in the Senate contained a proposal that would have changed tax law governing carried interests, also known as “promotes” in the real estate industry. NAIOP has long opposed changes to carried interest taxation that would adversely impact real estate. The latest proposal did attempt to address some of our concerns by including a specific real estate exception, but the provision had technical shortcomings that would have been problematic. NAIOP and NAIOP Arizona, along with our national real estate allies, worked to support Senator Kyrsten Sinema (D-AZ) in what ultimately became a successful effort to remove the carried interest tax increase.
Within the energy security and climate change portion of the IRA, commercial real estate also had some notable legislative achievements. NAIOP has consistently voiced support for sustainability policies that are voluntary, and that are economically and technologically feasible. Although certain labor and wage requirements included in the bill work would add to project costs, the overall tenor of the legislation is incentives-based and not the arbitrary, energy-efficiency mandates that we have opposed in the past. Specifically, the Section 179D Energy-Efficient Commercial Building Deduction, which NAIOP has strongly supported, was revised and expanded in the legislation to make it more useable for retrofits of existing structures to enhance their energy usage. Changes made to other tax credit provisions in the legislation also enhance their utility for commercial real estate.
While congressional legislating before the midterm elections is now finished, our advocacy efforts are not. There will be a lame-duck session of Congress after the elections. The September CR extends government funding through Dec. 16, which means that a post-election lame-duck Congress will have to agree on and pass an omnibus appropriations bill combining all remaining appropriations legislation for fiscal year 2023. That omnibus budget bill will be the last legislative train leaving the station and is often the vehicle for tax provisions to extend expiring or expired provisions, supplemental funding requests, and other items. NAIOP will be vigilant during its development to ensure the interests of the commercial real estate industry are represented.