WASHINGTON DC–Congressional Republicans are close to fulfilling a promise they have made repeatedly for years, comprehensive tax reform.

On the business side, the core elements of tax reform are a reduction in the corporate tax rate, a restructuring of the tax rules for multinationals, and some form of tax relief for pass-through businesses. Commercial real estate is primarily constructed, owned, and managed by businesses and entrepreneurs operating in pass-through form.

We asked Real Estate Roundtable CEO Jeffrey DeBoer and Roundtable Senior Vice President Ryan McCormick to help GlobeSt.com readers understand what type of relief Congress is considering for pass-through businesses, and what it could mean for both the commercial real estate industry and the broader economy.

We have been hearing for years that our corporate tax rate and rules are hurting US competitiveness. Why are pass-through businesses part of the tax reform conversation?

DeBoer: Today, most economic activity in the United States is conducted by pass-through businesses—partnerships, LLCs, S corporations, REITs, and sole proprietorships. In 2013, the most recent year we have data, pass-throughs generated nearly 62 percent of total business income. Well over 90 percent of small businesses (500 or fewer employees) are organized in pass-through form, and remarkably, these businesses created more than 60 percent of the net new jobs over the last 25 years.

Increasingly, the focus of US corporations is on their global operations and activities, which are vast and complex. Pass-through businesses, in contrast, are the principal employer and, in reality, the economic engine of the domestic economy.

Early on, policymakers recognized that in order for tax reform to spur real economic growth, they would need to encourage capital formation, investment, and job creation at all levels of economic activity, including pass-through businesses.

OK, so pass-through businesses have grown and now represent over half of the business activity. Other than the lack of an entity-level tax, what is their great appeal? Why do they deserve special treatment?

DeBoer: The ability to use the pass-through, partnership form to flexibly and effectively raise capital and conduct business is one of the great American innovations of recent decades. At a time when other countries are doing everything they can to catch up with us, our highly developed partnership tax rules have helped us stay the forefront of start-up and entrepreneurial activity. They are a critical part of our “intangible infrastructure”: the legal, regulatory, and tax system that makes the United States the envy of the world when it comes to entrepreneurship, risk-taking, and productive investment.

Take the case of real estate. Partnership tax rules in the United States facilitate new construction, increased investment, and job creation—much more than would occur if every owner was forced into the corporate form with a single class of stock. In partnerships, real estate professionals can join forces with institutional investors or other passive owners and allocate the risks and rewards of the business however they choose, as long as the arrangement has “substantial economic effect.” In reality, virtually every partnership agreement is different. The result is a much more dynamic and robust commercial real estate industry that reacts quickly to the changing needs and demands of America's communities. This same phenomena plays out in other industries—our flexible partnership tax rules promote capital formation and the allocation of risk in ways that accelerate investment and create jobs.

And that's just partnerships. Our tax rules related to real estate investment trusts (REITs) have made it possible for individuals at all income levels to efficiently and responsibly invest in professionally managed real estate. Our REIT rules have been such a success that they are now being rapidly adopted and implemented in countries around the world.

Aren't pass-through businesses already tax advantaged, compared to corporations? Do they really need the relief?

DeBoer: Currently, the tax rate on pass-through businesses can get as high as 43.4% (39.6% plus 3.8% tax on net investment income, which includes rental income). Corporations pay a top rate of 35%, and corporate income may be taxed again (at a top rate of 20%) if it is distributed to shareholders. Of course, corporations don't have to distribute their income, and many don't. For example, Berkshire Hathaway, Warren Buffett's firm, hasn't paid a dividend in over 50 years. Corporations can permanently defer the second level of tax. In contrast, the owners of pass-through business are taxed on the business's net income every year, even if the profits are reinvested in the business and not distributed.

In light of corporations' permanent tax deferral, if the corporate tax rate was reduced to 20%, and the top pass-through rate remained where it is today, the tax burden on partnerships and other pass-through businesses would be roughly double that of large corporations.

Combined, the outsized and important role that partnerships and other pass-through businesses play in the economy, and the relatively high tax rates on pass-through income, it is critical that meaningful tax reform include robust relief for pass-through businesses.