House committee concludes work on tax plan; ICSC advocates on behalf of industry

This week the U.S. House Committee on Ways and Means wrapped up consideration of its portion of a mammoth $3.5 trillion package of spending and tax proposals aimed at improving providing free pre-K and community college, increasing green infrastructure and reducing income inequality. 

Notably, the Ways and Means slate of pay-fors excludes revenue raisers recommended by the Biden Administration that singled out the commercial real estate industry. ICSC was particularly concerned about limiting like-kind exchanges, taxing the promote/carried interest as ordinary income and changes to stepped-up basis that would have taxed the built-in gain of inherited assets at death.  

“ICSC has long understood how critical this tax plan could be for our industry,” said Betsy Laird, ICSC senior vice president for Global Public Policy. “We held meetings with Congressional offices during the last eight months in anticipation of this package, and over the last two weeks we have intensified our efforts through a Virtual Congressional Fly-In, which featured 80 meetings with ICSC members and targeted Congressional members and staff on the tax priorities.”

ICSC members also sent more than 3,000 emails to Congress in opposition to the three targeted tax increases on CRE.

Highlights from the Ways & Means proposal:

• No changes to like-kind exchanges
• Preservation of step-up in basis and no taxation of capital gains at death
• Carried interest holding period for real estate is retained at 3 years but extended to 5 years for other industries
• Creates a new 3% surtax on incomes over $5 million
• Significant tax increases on individuals making more than $400,000 of income
  • The top cap gains rate goes from 20 to 25% for incomes over $400,000. (Surtax makes top effective rate on cap gains 28%.)
  • Increases top individual rate to 39.6% for incomes over $450,000 (joint)/$400,000 (single). (Surtax makes top effective rate on ordinary income 42.6%.)
  • Limits the maximum available 199A pass-through deduction for individuals making more than $500,000 (jointly).
• Changes to grantor trust rules and asset valuations for estate and trust purposes

“Although not as draconian as we had initially feared, it is important to remember this is but one step in a multi-step process,” Phillips Hinch, ICSC senior vice president for tax policy, said.

Next steps

The proposals must clear both the House and Senate – and can be passed without Republican votes. The chairman of the Senate tax-writing committee, Ron Wyden (D-OR), is expected to take a more aggressive approach on carried interest. The addition of any new proposals, like lifting the cap on the state and local tax (SALT) deduction, could spur the need for additional revenue. 

“While Congress is in search of needed offsets, it is best to assume all the cards are still in play,” Hinch said.

The next steps remain in flux. House and Senate leaders are already in discussions about the contours of a final product. ICSC will keep you updated as this legislation progresses.  

A summary of the tax increases can be found here and other portions of the bill here.

If you have any questions, please email gpp@icsc.com.