With a flurry of last-minute amendments designed to woo waffling Republican Senators, including a $10,000 deduction for state and local property taxes, the Senate worked into the early morning hours today, Saturday, December 2, to pass a historic and divisive tax reform bill that will have sweeping impacts on the nation and the real estate industry.
Senate Majority Leader Mitch McConnell held a press conference shortly after passage saying the bill would provide “substantial relief to the middle class,” an assertion disputed by the bill’s critics, including a rare critical op-ed from the editorial board of The New York Times.
The legislation, the “Tax Cuts and Jobs Act,” passed along largely party lines, 51-49 (Republican Senator Bob Corker of Tennessee voted against it). Lawmakers will now be tasked with reconciling disparities between this tax reform bill and the one that passed in the House last month, before ushering joint legislation onto President Donald Trump by the end of the year.
GOP Senators Jeff Flake of Arizona, Steve Daines of Montana and Ron Johnson of Wisconsin voted in favor of the bill following weeks of opposition stemming from issues involving pass-through entities and deficit threats. With pass-throughs, in particular, tax deductions increased from 17.4 percent in an original draft of the bill to 23 percent on Friday, apparently satisfying Johnson, the wealthy owner of a plastics manufacturing company who lobbied hard for greater deductions.
According to a tweet Friday by Democratic Sen. Claire McCaskill of Missouri, at least 30 new amendments wound up in the revised bill, ranging from a request for “pass-through deductions for distributions from publicly traded partnerships” to a provision from Sen. Deb Fischer of Nebraska that would “improve employer credit for paid family and medical leave.”
“This is so bad,” McCaskill tweeted on Friday. “We have just gotten list of amendments to be included in bill NOT from our R colleagues, but from lobbyists downtown. None of us have seen this list, but lobbyists have it. Need I say more? Disgusting. And we probably will not even be given time to read them.”
For real estate professionals, the elimination of state and local property tax deductions was a major point of contention, with the National Association of Realtors (NAR) warning that the provision, combined with a House plan to reduce the mortgage interest deduction by half, would drastically chip away at property values and deter sales activity. But in a last-minute bid to woo moderate Republican Sen. Susan Collins of Maine, a $10,000 state and local tax deduction was added into the Senate tax reform legislation,
On Saturday, NAR President Elizabeth Mendenhall released a statement of concern about the bill, saying:
“The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country. When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas.
“Realtors support tax cuts when done in a fiscally responsible way; while there are some winners in this legislation, millions of middle-class homeowners would see very limited benefits, and many will even see a tax increase. In exchange for that, they’ll also see much or all of their home equity evaporate as $1.5 trillion is added to the national debt and piled onto the backs of their children and grandchildren.
Last month, NAR characterized both bills as “an assault on housing,” and broadly condemned numerous provisions that would either increase taxes on homeowners or provide fewer cuts than renters. In particular, Mendenhall lambasted the House proposal to lower mortgage interest deduction from $1 million to $500,000, but they reserved plenty of ire for the Senate bill, which includes tenure requirements that could expose homeowners to tens of thousands in new capital gains taxes.
The dilution of the Low-Income Housing Tax Credit and the repeal of student loan interest deductions and moving expense deductions were also cited as dangerous by the group.
“This is about a lot more than the mortgage interest deduction,” said Mendenhall during the press briefing in early November. “Instead it’s about a very fundamental question of whether or not we want to be a nation of renters or do we want to be a country of homeowners?”
Email Jotham Sederstrom