Staff reports
WASHINGTON, D.C. — With congressional tax-writers intensifying their efforts to overhaul the U.S. tax code, The Real Estate Roundtable is urging a pro-growth approach to tax restructuring that recognizes commercial real estate’s vast economic contributions and includes appropriate “transition rules” to help minimize disruptions to real estate and other economic sectors.
“The nation’s tax laws need to be revamped to unleash entrepreneurship, investment, capital formation and job creation,” wrote Real Estate Roundtable President and CEO Jeffrey DeBoer in his March 21 letter to House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Sander Levin (D-Mich.).
“But this process poses risk and, therefore, it must be undertaken with great care. We urge the Ways and Means Committee to be mindful of how proposed changes in commercial real estate taxation can dramatically affect the health of the U.S. economy, jobs, retirement savings, lending institutions, pension funds and, of course, local communities,” added DeBoer.
As an example of the unintended consequences of tax reform, DeBoer noted the destabilizing effect of the 1986 Tax Reform Act on commercial real estate values, financial institutions and tax bases — due largely to significant policy changes that were applied to pre-existing real estate investments.
“It took years for the overall industry to regain its productive footing, and certain aspects of the economy never recovered,” DeBoer wrote.
The letter also calls for tax-writers to recognize commercial real estate’s historic role as a driver of broader U.S. economic growth. Commercial real estate is both a major contributor to — and a reflection of — the U.S. economy. Thus, when commercial real estate markets are healthy and in balance so is the broader economy.
“Rational taxation of real estate assets and entities promotes job creation and facilitates sound, environmentally responsible real estate investment and development, which contributes to strong property values and well-served, livable communities,” DeBoer stated.
The commercial real estate industry generates as much as 70 percent of tax revenue in many local jurisdictions, helping to pay for essential public services such as education and law enforcement, according to The Real Estate Roundtable.
Additionally, more than $300 billion is invested in real estate and real estate-backed investments by tax-exempt organizations such as pension funds and educational endowments.
America’s commercial real estate industry is also supported by more than $3 trillion in debt held by commercial banks, life companies, pension funds and fixed-income investors who purchase commercial mortgage-backed securities (CMBS).
As broad general tax reform guidelines for commercial real estate, The Real Estate Roundtable suggests a roadmap that:
- promotes economic growth across all sectors of the economy;
- is relatively simple, or at least simpler than today’s system;
- assures predictability for long-term investment;
- treats real estate consistently with other types of businesses;
- refrains from giving new real estate activities an advantage over existing ones;
- provides for a reasonable transition regime that minimizes dislocation in real estate markets.
The Real Estate Roundtable plans to follow up with more specific comments and recommendations to various Ways and Means Committee tax reform working groups.
Based in Washington, D.C., The Real Estate Roundtable brings together leaders of the nation’s publicly held and privately owned real estate firms with the leaders of national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.