Capitol Hill

WASHINGTON, DC-As far as recent Washington crises go, President Obama’s proposed budget for the fiscal year was, on one hand, a yawner. No looming deadline is on the horizon; the US credit rating is secure – at least from this particular event; no tsunami of tax increases is coming down the pike. Furthermore, the proposed budget must wend its way through Congress – a bitterly divided Congress. The chances of the budget as currently proposed emerging intact are close to nil.

On the other hand, the budget is a statement of sorts by the Administration of its goals and views and hoped-for direction for the country and economy. In that respect, it is a quite serious event.

So, understandably, the commercial real estate industry was dismayed – although not at all surprised – by the proposed measure to recharacterize carried interest. Again.

To be sure, most see the need for change, even radical change. Institute of Real Estate Management’s Chief Legislative Officer Chuck Achilles notes that even if sequestration stays in place the resulting savings are a drop in the budget against the federal debt. This is the case, he tells, even if sequestration stays in place the entire ten years. “What was missed in the debate about sequestration is that budget cuts will double every year. So this year it was $85 billion trimmed from spending. Next year it will be $170 billion.”

Carried interest, though, is not what the CRE community has in mind. “We are very concerned about the issue,” Achilles says. The current carried interest tax rate is necessary to reward the risk taking in real estate investment, he continues.

“We want to keep it vibrant and keep people interested in purchasing real estate,” Achilles says.

This is the view of many in Congress, particularly in the Republican party, of course. Normally they can be counted on to protect carried interest. This year, however, is a bit different with the promise of comprehensive tax reform dangling in the distance. Several Congress people from both parties have made statements to the effect that–and pardon me in advance for the mixed metaphors–all sacred cows are on the table.

The Obama budget highlighted another reality that is unpleasant about Washington: uncertainty is the rule of the day. Consider the estate tax, which was made permanent by the fiscal cliff deal in January. According to Investment News, the proposed budget would rescind that permanent tax in 2018, bringing it back to 2009 levels.

“We believe that in these fiscal times, that it’s responsible policy in 2018 for the estate tax to return to the 2009 parameters,” the publication quoted Jeffrey Zients, acting director of the Office of Management and Budget, as saying.