Since President Trump is deep in private real estate, maybe there will be some good things coming to the industry during his administration.
There were six major themes that President Trump campaigned on the most:
- Immigration and the wall
- Trade fairness
- Tax changes
- Healthcare changes
- Dodd-Frank changes
- De-regulation in general
Other than immigration, President Trump has proven himself to prefer to make policy through the 140 characters in Twitter, instead getting deep into the policy weeds. We need to look to Congress for a legislative blueprint, since President Trump does not seem to have one.
What does the Republican leadership in Congress want do? Specifically what do Paul Ryan in the house and Mitch McConnell in the Senate?
What can they convince the House and Senate to do?
That is the big question right now with the American Health Care Act. The Republican house is torn between those who think the bill goes too far and those who think it doesn’t go far enough. Many campaigned on just the repeal part. Many others learned that what their constituents didn’t like about Obamacare is that is too expensive. The American Health Care Act only does one of those.
Speaker Ryan has promised a vote on the Republican healthcare bill on Thursday to coincide with the 7 year anniversary of the Affordable Care Act. We’ll see if Speaker Ryan is able to shepherd this very unpopular bill through the House and get enough votes.
Then what?
Most likely tax reform. Speaker Ryan published his “A Better Way” white paper in June of 2016. Unlike the American Health Care Act, legislators have been able to look at this already. Here are some of the highlights.
- Biggest change is the Border Adjustment Tax (unlikely to affect real estate directly.
- Fewer tax brackets
- Top rate of 33% for individuals
- Limit pass-through income from partnerships and LLCs to 25%
- Lower corporate tax rate to 20%
- Eliminate deductibility of interest expenses.
- Individuals only taxed on half of their dividend and capital gains
- Immediate cost recovery for investments instead of a depreciation schedule. (not clear on real estate)
- Net Operating Losses can be carried forward and be adjusted for inflation
- Eliminate the Alternative Minimum Tax,
- Eliminate the estate tax
- Eliminated Obamacare taxes (the last one is the healthcare bill)
President Trump mentioned removing favorable treatment of carried interest during the campaign. That is not Speaker Ryan’s blueprint. It’s been threatened before and survived.
After that, or during that, is financial de-regulation. Chairman Jeb Hensarling of the House Financial Services Committee has been working hard on his Dodd-Frank off-ramp for the last six years pushing bits of legislation through his committee and on to the House floor. The Financial Choice Act has been floating around for a year and packages that work into one package.
“As the dust begins to settle on the post-crisis response, however, there has been a growing recognition that financial regulation has become far too complex and too intrusive and places too much faith in the discretion and wisdom of bank regulators.”
Here are some highlights:
- Pitch is to help community banks.
- Adjust capital requirements – removing Basel requirements
- Make credit more available
- New Bankruptcy code for financial institutions
- Repeal FSCO’s Systemically Important Financial Institution designation powers
- Reform Consumer Financial Protection Bureau
- Federal Reserve Reform
- Repeal the Volker Rule
- Repeal Dodd-Frank registration requirements for private equity firms
- Expand definition of accredited investor: Same income and net worth tests, but adds financial services experience or some sort of qualifying experience.
As much as the Republicans are campaigning against de-regulation the Financial Choice Act does not define “private equity firms” and requires the SEC to promulgate a new regulation to define it. SEC registration was on the edge during Dodd-Frank, The house version of the bill and the Senate version of the bill took opposite approaches on whether to subject private equity firms to SEC registration. During hearings, private equity kept being equated to leveraged buyouts that bankrupted companies and put people out of work to enrich corporate raiders.
I presented the above to PartnerConnect East 2017 yesterday.
Sources:
- The Financial CHOICE Act
- Bill Text
- Comprehensive Summary
- Executive Summary
A Better Way” white paper
