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Originally published in Interiors & Sources

01/31/2012

Congressional Inertia Leads to Business Uncertainty

Building owners eye 2012 legislative priorities

By Karen Penafiel

 

The First Session of the 112th Congress has come to a close. Though our legislators are approaching primary season, you would have to look pretty hard to find one that has taken to the airwaves to tout legislative accomplishments. Instead, we’re hearing quite a few excuses, complemented by the inevitable finger-pointing.

Large segments of the population have likely tuned out much of it, but for those of us who watch this for a living, the view from within the nation’s capital is about as bad as it’s been in the last few decades.

To sum up: Despite months of scrutiny and debate, our deficit is still out of control, and the disruptions in our financial systems reverberate across the globe. Congress narrowly averted a government shutdown – not once, not twice, but three times. At the end of 2011, they mustered agreement on a short-term payroll tax holiday.

And if that’s not enough, consider some of the issues even closer to your home and livelihood. On Dec. 31, 2011, the 15-year depreciation period for leasehold improvements reverted to 39 years. This is because Congress has allowed the “expiring tax provisions” to expire.

In 2004, President Bush signed into law a corporate tax bill that temporarily reduced the depreciation period for leasehold improvements from 39 years – the rate of the building structure itself – to 15 years for improvements put into place before the end of 2005. It was subsequently extended a number of times.

The most recent extension was included in a compromise tax bill between President Obama and the Republicans that passed at the end of 2010, almost a full year after the law had already expired. It included a two-year retroactive extension that applied to improvements made in 2010 and 2011.

Congress discussed extending this package of tax cuts, but no action was taken, and the issue was lost in the December debate over the federal government’s 2012 budget and the payroll tax extension. As of press time, no final action has been taken to extend the 15-year depreciation timeline for 2012 and beyond.

Our fear is that, absent the looming threat of the Dec. 31 deadline, inertia will set in and we’ll find ourselves in the same situation as in 2010 – wondering when Congress will act and if any action will be retroactive.

Obviously, the commercial real estate industry would be much better served if Congress implemented these types of tax changes for a multi-year period, and thus give our industry some degree of financial certainty on which to base hiring and investment decisions. BOMA continues to carry that message to Capitol Hill.

On the bright side – and there always is a bright side – congressional inertia also worked in our favor. Commercial real estate again dodged a bullet on carried interest. Congress has debated several times now whether to increase the tax rate of carried interest – currently taxed at the capital gains rate of 15% – to the rate of ordinary income.

This tax change has been proposed numerous times as a revenue raiser to offset the cost of other legislative priorities. But since none of these other legislative priorities have seen any action, we’re safe for now.

Energy policy also floundered during this session of Congress, which is both good and bad. We’ve escaped from the ongoing threat of energy efficiency mandates, but it’s also slowed the progress of legislation that would change the tax incentives for energy efficiency retrofits, making them more robust and attractive to the industry.

2012 will be a short legislative year. Primaries begin in earnest in the spring and legislative work will wane once August rolls around. To further complicate matters, redistricting issues are still unresolved in many states, leaving many incumbents and challengers wondering which district they’re even running in.

The one thing that is certain is that legislators are hearing, louder than ever, that their constituents want Congress to operate more like any of us would run our own businesses. And that’s where you come in. It is our responsibility, collectively and individually, to ensure that our elected leaders are hearing this message from us: the owners and managers of commercial real estate.


Karen Wilbur Penafiel, CAE (kpenafiel@boma.org) is vice president of advocacy, codes, and standards for BOMA International. For more information on this and other topics, call BOMA International at (202) 408-2662 or visit www.boma.org.


 

 
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