Senate Democrat Looks to Trim a Tasty CRE Tax Cut

Senate Democrats on the Finance Committee are trying to pare back a 2017 Tax Cuts and Jobs Act provision that was a CRE perk.

However, ironically, between some senators who might find it to be too little and others, too much, it’s not clear whether it could ultimately pass.

The measure allows pass-through businesses—including real estate activity—that meet minimum required hours of service to take an additional 20% deduction.

Sen. Ron Wyden (D-Ore.), the committee’s chair, introduced a bill that would scale back the income levels of people allowed to take the deduction, increasing . 

Those making more than $400,000 would not be able to benefit from it. A New York Times report quoted a statement from Wyden claiming that half of the benefit’s value went to millionaires, meaning that half went to those who weren’t millionaires

The Times separately quoted unnamed Democrats on the committee that 61% of the benefit has gone to the top 1% of earners, a number that doesn’t reconcile with Wyden’s claim.

The 50% figure to millionaires is likely closer, Alex Durante, a federal tax economist with the Tax Foundation, tells GlobeSt.com According to his analysis of IRS data, “45% went to tax returns with income above $500,000.” If those people had a net worth of more than a million, Wyden would be in the ballpark.

But the figures, and the potential effect of the bill, get complicated. There are calculations that are “hard to make” for people whose income is between $315,000 and $400,000, likely putting them in the top 5% of earners, Durante says. 

“But what’s also interesting, the proposal would make the deduction somewhat more generous” for those with income falling between $315,000 and $400,000, Durante adds. The complex calculations that can reduce the value of the deduction disappear, leaving those people to “likely benefit.”

That additional benefit could put the brakes on the entire effort.

“Even some of the congressional Democrats aren’t necessarily on board. For some of the congressional Democrats, it might not go as far as they’d like with some of the top earners,” Durante says. “Then you have some of the swing state [Democratic] senators where it’s unclear that it’s a proposal that they would also support.” 

The result is a tug of war between not enough deduction reductions and too many. “The likelihood of this passing, my guess would be probably pretty unlikely,” Durante says.