Washington Update - 11/02/2007

November 2, 2007


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Carried Interest in Cross Hairs of House AMT Tax Relief
The House Ways and Means Committee on Nov. 1 marked up and approved H.R. 3996, the Temporary Tax Relief Act of 2007. The primary focus of the bill is to extend short-term relief from the Alternative Minimum Tax (AMT) for another year, which would prevent an additional 20 million Americans from being captured under the tax. The bill also extends a number of expiring tax provisions of interest to NAHB such as brownfields expensing, New Market Tax Credits and leasehold improvements. However, one of the primary revenue offsets (recall that the House passed “pay-as-you-go” rules this year that require offsets for all tax cuts) for the one-year AMT patch is changing the taxation of carried interest from the current 15% capital gains rate to ordinary income tax rates that can run as high as 35%. This is a proposal that NAHB opposes and has been lobbying heavily against during the past four months because it would disrupt the investment relationship between investors and developers, particularly multifamily and commercial builders.

Finally, the committee also included in the bill the full text of H.R. 3648, the Mortgage Debt Forgiveness Relief Act of 2007, legislation supported by NAHB because of its critical importance to efforts to respond to the mortgage crisis and passed by the House of Representatives in early October. The bill was most likely included in H.R. 3996 because the AMT patch legislation is considered a “must-pass” item and is the best vehicle for getting the mortgage debt forgiveness passed into law this year. This is also likely an attempt to push the Senate to include the mortgage debt forgiveness provisions in its AMT relief bill.

NAHB sent a letter to the House Ways and Means Committee immediately prior to the markup acknowledging the importance of AMT relief and mortgage debt forgiveness but still expressing significant concerns over the carried interest proposal. H.R. 3996 was approved by the panel without any changes to the carried interest provision. However, Chairman Charlie Rangel (D-N.Y.) and Ranking Member Jim McCrery (R-La.) agreed to work with other members of the panel who expressed support for protecting real estate and perhaps other industries that are true "job creators and engines of the economy" from this tax. Realistically, it could be difficult for them to simply carve out specific industries from the carried interest proposal because there are few other avenues available to raise this revenue.

In the Senate, the situation is a little different. Senate Finance Committee Chairman Max Baucus (D-Mont.) and several other Democratic members of the committee have expressed discomfort with the carried interest proposal as crafted in the House, and Senate Majority Leader Harry Reid (D-Nev.) has even stated that no stand-alone legislation on carried interest will pass the Senate this year. Further, the Senate has shown more willingness to passing temporary AMT relief without any revenue offsets. In short, the House action will not be the final word in this legislative process and even Rangel has predicted a “calamity” over revenue offsets when the House and Senate try to work out the AMT legislation. The AMT patch could ultimately be passed into law without a revenue offset. NAHB continues to weigh-in with both the House and Senate on carried interest as well as gaining swift passage of mortgage debt forgiveness legislation. For more information, contact Greg Brown at 1-800-368-5242, x8470.

Low Income Housing Tax Credit Relief on Hold in House
Efforts to move Low Income Housing Tax Credit modernization in the House of Representatives were dealt a blow this week when Ways and Means Committee staff notified NAHB and other housing industry organizations that a bill could not be completed this year. Due to calendar constraints, the bill will continue to be drafted but will not see full committee action until 2008. On the Senate side, Sen. Maria Cantwell (D-Wash.) has taken the lead on drafting a modernization bill of her own, modeled to a large degree on the LIHTC bill from the 109th Congress. She has indicated a preference for introducing the bill this year and NAHB is providing input to the senator’s office to aid in that effort. We also are working for the inclusion of a specific remedy for the income limits/rents problem and continue negotiations with a wide group of industry advocates to achieve consensus on a solution. While the House bill was the primary vehicle to move an income limits/rents fix, we remain watchful for other potential legislative opportunities.

Another important LIHTC proposal for NAHB members saw the light of day during a Ways and Means Committee markup this week. During consideration of H.R. 3997, the Heroes Earnings Assistance and Relief Tax Act of 2007, Rep. Phil English (R-Pa.) proposed an amendment that would permit a service member’s basic allowance for housing (BAH) to be excluded from the calculation of income when determining eligibility for LIHTC housing. The amendment was ultimately defeated; however, Rep. English had a lively exchange with Chairman Charlie Rangel (D-N.Y.) on the issue. NAHB continues to advocate with members of Congress on this proposal. For more information, contact Greg Brown at 1-800-368-5242, x8421. [return to top]

Global Warming Bill Clears Senate Panel
The Senate Subcommittee on Private Sector and Consumer Solutions to Global Warming and Wildlife Protection this week voted 4-3 to pass S. 2191, America’s Climate Security Act. The bill calls for mandatory restrictions on carbon dioxide emissions from power plants and marks the first Senate committee action on a significant global warming measure since 2001. The broad measure would impose mandatory limits on six different heat-trapping gases that account for more than two-thirds of U.S. economic output, including electric utilities, petroleum refiners, manufacturers and natural gas users. The bill would also impact home building as it includes provisions to increase state building codes by 30% and 50% above the 2006 International Energy Conservation Code and allows the Department of Energy to intervene when states cannot achieve these targets. Sen. Barbara Boxer (D-Calif.), chairwoman of the Senate Environment and Public Works Committee, has indicated that she hopes to mark up the legislation in the full committee before the U.N. Climate Change meeting in Bali, Indonesia, in early December. For more information, contact Elizabeth Odina at 1-800-368-5242, x8570. [return to top]

Bundled Labor-Military Spending Bills Face Presidential Veto
House and Senate appropriators this week appointed conferees to the fiscal 2008 Labor, Health and Human Services and Education Appropriations bill, working quickly to draft a conference report that they can send to the White House. The conference report, which is expected to pass the House and Senate next week, will be bundled together with the Military Construction Appropriations bill and sent to the President, who has stated he will veto the measure. The entire package would provide about $215 billion in discretionary spending, the bulk of which--$151 billion—is contained in the Labor spending bill. The total spending level for the combined package represents about $14 billion more than the President requested in his annual budget request, providing the White House with its most prominent reason for the anticipated veto. The Labor/Military Construction bills wouldl be the first fiscal 2008 appropriations bills to be sent to the White House this year. Republican House lawmakers believe they have more than enough votes to sustain the President’s veto, leaving in doubt the process for completing the appropriations measures for the remainder of the year. For more information, contact Jenna Hamilton at 1-800-368-5242, x8407. [return to top]

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