Tax Bill Spurs Swift Outcry From Realtors, Small Businesses

(Bloomberg) -- Opposition to sweeping tax legislation introduced Thursday emerged quickly, led by national groups for Realtors and small businesses, sending a signal to Congress that passing the bill could be an uphill battle.

The National Association of Realtors and the National Federation of Independent Business were among the first lobbying groups to issue statements criticizing the bill, a sign of the obstacles congressional leaders and President Donald Trump are facing over their effort to revamp the U.S. tax system for the first time in more than 30 years.

“The National Federation of Independent Business is unable to support the House tax reform plan in its current form," said Juanita Duggan, the president and chief executive officer of the group representing small-business owners. “This bill leaves too many small businesses behind."

William Brown, president of the National Association of Realtors, said in a statement that the bill, which would cap the mortgage-interest deduction on new home sales at $500,000, down from the current ceiling of $1 million for couples filing jointly, "is nowhere near as good a deal as the one middle-class homeowners get under current law."

"Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford," Brown said.

In addition to contacts with lawmakers, the group is planning to run online ads in the districts of members of the House Ways Means tax-writing committee and states of those on the counterpart Senate Finance Committee, according to a person familiar with the group’s strategy. The ads urge homeowners to tell their representatives not to "let tax reform become a tax increase for middle class homeowners."

Pass-Through Measure

The small-business owners group, which was supportive as recently as September, soured on the bill after measures were added to limit the businesses that would get relief from a provision that rewrites rules for partnerships, limited liability companies and other so-called pass-throughs. Duggan said the measure leaves too many of its members behind.

She said the group would work with House Ways and Means Chairman Kevin Brady, the Texas Republican who will manage the bill, "to make the necessary corrections so that the benefits of tax reform extend to all small businesses."

Currently, businesses organized as pass-throughs move their earnings through to their owners, who are taxed at their individual income rates, which can be as high as 39.6 percent.

Professional Services

While the bill would reduce the top pass-through rate to 25 percent, it places limits on the kind of income that would qualify. For example, providers of professional services, including doctors, lawyers, accountants and others, wouldn’t automatically qualify for the lower rate.

The Club for Growth, a conservative free-market group, also said the legislation doesn’t do enough for small businesses and criticized the restoration of the 39.6 percent tax rate on some taxpayers, though it praised the bill for cutting the corporate tax rate and allowing businesses to write off expenses immediately.

The U.S. Chamber of Commerce, which had made procedural votes to speed the bill a key metric for rating lawmakers, said "a lot of work remains to be done to get the exact policy mix right and move from a legislative draft to an enacted law." Still, the business group said the bill is "exactly what our nation needs to get our economy growing faster."

The chamber also will be "well placed" and active in upcoming discussions over transition rules, such as phase-ins of provisions or the grandfathering of existing debt, said chief policy officer Neil Bradley.

Ideas Welcome

"The best way to influence the process is to be constructive and to keep it moving forward," he said, adding that sectors of the economy with concerns have to propose alternate provisions because of tax-writers’ revenue concerns. "Trying to blow up the process and slow down momentum, that might be the most counterproductive way possible to address your concern."

The National League of Cities also quickly voiced its opposition to the legislation, which includes a $10,000 limit on deductions for state and local property taxes.

“We see this bill as yet another attempt to limit local control and pass the cost of action in Washington onto city halls throughout the nation,” league President Matt Zone, a council member in Cleveland, said in a statement. “Hundreds of local and state governments levy income and sales taxes to pay for community development, schools and public safety under the premise that their residents will not face double taxation from the federal government.”

Americans Against Double Taxation, a coalition of advocacy groups that includes the cities league and is dedicated to preserving the state and local tax deduction, also said it would fight the bill.

The first test of the bill comes Monday, when the House Ways and Means Committee is scheduled to take it up. Among the changes for business and individual tax rates is a measure to cut the corporate tax rate to 20 percent.

Others came out in favor of the proposed legislation, including JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, speaking as chairman of the Business Roundtable, which represents CEOs of America’s biggest companies. A tech industry group also lauded the move to lower the corporate tax rate and stimulate growth and said it would review the plan.

--With assistance from John McCormick and Bill Allison

To contact the reporter on this story: Ben Brody in Washington at btenerellabr@bloomberg.net.

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, Justin Blum

©2017 Bloomberg L.P.