CRE FinanCE W Rld

Our Expectations for the Coming Congress — Could Go Extra Innings
Balk. While we are bullish, we are not giddy. As our friend Isaac
Boltansky from Compass Point points out, there are significant
headwinds, including:
• The 1986 tax reform bill took approximately two years to write,
and it wasn’t in the lens of today’s hyper-focused media outlets
highlighting threats to embedded tax breaks or a 24-hour
news cycle;
• There is general agreement on framework between Congressional
leaders and Trump, but there are meaningful differences on
specific issues like the top corporate rate, deficit-neutrality, and
the use of repatriated funds; and
• The sweeping transition coupled with the expansive policy
agenda increases the potential for legislative delays.
NL vs AL. Speaking of not giddy, our third driver of Congress is
the ability of Speaker Ryan to keep his caucus in line. There are
a host of early year activities that will no doubt test his patience.
While the repeal of ACA will be catnip to many in the caucus,
certain provisions have become popular and may prove to be
proverbial “third rails” if the push to repeal gets overly zealous.
Additionally, the bill to keep the government open will expire
between March and May 2017 (timing uncertain as of this writing).
Couple this with the required extension of the debt limit (a
perennial slugfest) in summer or early Q3 and you have the
makings of a ripe family drama. Readers will recall it was these
types of showdowns that ultimately cost Boehner the Speaker’s
gavel, and a very unwilling Paul Ryan stepped up to prevent a
party meltdown.
Other Wildcards. With such an ambitious agenda, we will need a
productive lineup for teams being fielded in January. But, as usual,
party dynamics, external factors and “over-legislating fatigue” have
been known to set in and quell progress. Massive legislative efforts
such as those described above are subject to a certain amount of
decorum in both chambers and we caution that it only takes one
toxic package (see: immigration reform, trade agreements, GSE
reform, etc.) to derail future progress.
introduced a bill to undo some of the more controversial parts of
the Dodd-Frank Act. Called the “Financial Choice Act”, it contains
myriad provisions, but those directly affecting CRE are the repeal
of risk retention; repeal of the “Franken Amendment” for credit
ratings agencies; repeal of the “Volcker Rule”; the requirement for
Congressional approval for major rulemakings; and finally an “off
ramp” for well-capitalized banks to avoid many of the regulatory
burden that resulted from Dodd-Frank, including Basel compliance.
On the tax front — given much attention during Election 2016 —
Trump and Speaker Ryan are in about 80% agreement. Of course,
details will need to be fleshed out during the next Congress, but
the underlying principals in the House Blueprint are:
• Reduce the top C-Corp tax rate from 35% to 20% and cap the
S-Corp tax rate at 25% — individual tax rates are the same for
both Trump and Ryan plans at 12%, 25% and 33%; (Trump’s
plan has C-corp rate at 15%);
• Allow for the full and immediate depreciation for cap-ex; shifts
U.S. to a territorial tax system; and
• Carry forward Net Operating Losses (NOLs) indefinitely.
We are more bullish on the corporate side than on the personal
income tax side where there are vested interests to overcome in
such a short time horizon.
We think that both initiatives have the potential to gain major
traction in 2017. Speaker Ryan has made tax reform his personal
crusade, and we believe that the stars are aligned for not only
the Chicago Cubs, but also major corporate tax overhaul, if not
personal as well.
Summarized below are two of the reference bills that came under
consideration last Congress. We believe that these will bear
some resemblance to what is ultimately considered by the Trump
administration and the new Congress, albeit with a few signature
tweaks from the Donald, of course.
The most relevant bill to commercial real estate at the moment
appears to be from many months back, where the Chairman of
the House Financial Services Committee, Jeb Hensarling (R-TX),
A publication of CRE Finance World Winter 2017
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