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‘Mother of All Tax Bills’ Targets Carried Interest
After more than six months of anticipation, House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) last week released what he calls the “mother of all tax bills” — H.R. 3970, the Tax Reduction and Reform Act of 2007.
The legislation is wide-ranging and includes changes to both the individual and corporate tax systems.
The primary focus of the bill is the permanent repeal of the Alternative Minimum Tax (AMT) — paid for by replacing the AMT with a 4% surtax on adjusted gross income of more than $150,000 for individuals and more than $200,000 for married couples. The surcharge would rise to 4.6% for income over $250,000 for individuals and over $500,000 for married couples.
The bill would also lower the overall corporate tax rate from 35% to 30.5% and extend the deduction for private mortgage insurance and a number of expiring tax incentives of importance to real estate.
NAHB staff members are analyzing the proposal to determine how it would impact housing and the home building industry.
While there is little expectation that this bill will pass this year, it serves as a good indicator of how Rangel would like to proceed with tax reform. NAHB will be communicating industry concerns to both Rangel and the full House of Representatives.
Short-Term AMT Relief Could Be Extended for a Year
H.R. 3970 would also extend short-term AMT relief for another year, which would prevent an additional 20 million people from being subjected to the tax. This piece is likely to be spun off from the larger bill, along with the extension of a number of expiring tax provisions, so that it can move quickly through the Ways and Means Committee and, ultimately, the full House. A committee markup of the bill could take place next week.
Of great concern to NAHB is that the cost of this smaller bill would be offset through a change in the taxation of carried interest. This provision mirrors legislation introduced by Rep. Sander Levin (D-Mich.) earlier this year (H.R. 2834) that would tax a carried interest at ordinary income tax rates as high as 35% instead of the current 15% capital gains rate.
While this proposal has been promoted as a method for ensuring that highly paid hedge fund and private equity fund managers pay their appropriate level of tax, it would disproportionately affect real estate, especially small developers.
Short-Term AMT Relief in the Senate
Senate Finance Committee Chairman Max Baucus (D-Mont.) is also committed to passing short-term AMT relief before the end of the year, although he has expressed no interest in larger AMT repeal legislation at this time or in passing stand-alone carried interest legislation along the lines of Rep. Levin’s bill.
Further, there have been some discussions over waiving congressional pay-as-you-go requirements for this legislation and whether the Senate will require any offset for an extension of short-term AMT relief.
The House leadership to date has not supported this approach and the situation is highly fluid.
NAHB is weighing in with concerns and monitoring the activities on both tax bills closely.
For more information, e-mail Greg Brown at NAHB, or call him at 800-368-5242 x8421.
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