Tax overhaul plans are in slow motion
If you’re a tax-savvy home owner, buyer or investor, you might be wondering: Hey, what’s going on with that big tax code overhaul bill the Trump administration and Republicans in Congress have been promising to deliver?
There’s been plenty of news about health care legislation — the other blockbuster Republican campaign plank — but hardly a peep lately about a tax bill that could have far-reaching effects on real estate and other segments of the economy. Among the potential real estate changes that have surfaced: An end to home owner write-offs of state and local taxes; a doubling of the standard deduction, thereby watering down the mortgage interest deduction; severe limitations or an end to tax-deferred exchanging. Plus there have been questions about how any tax overhaul plan would treat the most generous lump-sum tax code benefit available to home owners: Exclusion of up to $250,000 or $500,000 tax-free from capital gains on home sales, depending on whether they file singly or jointly. Some analysts say that benefit, which is projected to cost the Treasury $166 billion in uncollected tax revenues between 2016 and 2020, could be reined in.
This is important stuff to millions of owners and buyers of real estate, so where’s the legislative “reform” package Republicans have promised, cutting tax rates for individuals and corporations and simplifying returns for just about everybody? Does this have enough life in it to pass this year? Or is it shriveling away in the summer political heat?
Here are a couple of things you should know: The tax overhaul efforts on Capitol Hill and at the White House are alive and active but are mainly occurring behind closed doors. There have been no public hearings, no introductions of draft language, no markups of bills. In fact — and this may surprise you — there is no “tax bill” per se that you can look at, even though we are halfway through 2017.
The Trump administration’s tax plan released in April consisted of just a one-page handout, and there have been no significant details since then. The House Ways and Means Committee is working off a “blueprint” of proposals dating back to mid-2016 but hasn’t yet released an actual bill for 2017. And Senate Finance Committee Republicans have not yet produced even rough conceptual drafts of what they want to do, at least not for public consumption. The chairman of the committee, Sen. Orrin Hatch (R-Utah), only recently assigned members specific areas of the tax code to consider for possible changes. So it doesn’t appear that the Senate is all that far along in the process either.
Treasury Secretary Steven Mnuchin predicted that a comprehensive tax bill would be ready by August. He has since revised that to “this year.” House Speaker Paul Ryan (R-Wisc.) agrees. Nobody can give you a definitive answer on these predictions, but the odds against it grow longer every day. Even though shaking up the tax code is important, other, more immediate major issues coming before Congress stand in its way. They include a must-do budget resolution for the next fiscal year, a revised debt ceiling, appropriations bills and, of course, health care.
Any or all of these could eat up substantial time and political oxygen. Add in the fact that Congress doesn’t have a lot of scheduled work days in Washington — by one count less than 60 days from mid-July through December — and you begin to see the squeeze taking shape.
Even more important: Comprehensive tax code reform is always a minefield. It’s one of the toughest and most divisive exercises any Congress can attempt. That’s why the last time it happened successfully was back in 1986. A narrow-bore tax bill that doesn’t touch as many sensitive nerves but cuts corporate and individual tax rates would have a better shot at passage this year, but even that would likely require revenue-raising provisions in order to pass — and raising revenue, aka increasing taxes on somebody or another, is anathema to most Republicans and many Democrats.
So where does this leave home owner and investor tax breaks? Safe from any radical changes for the time being. But even if a wide-ranging overhaul doesn’t pan out in 2017, you can bet it will be high on the agenda next January. Then again, 2018 is a congressional election year. Incumbents don’t like to run on the message: Vote for me — I took away some of your cherished real estate tax benefits.
So all bets might be off.