Washington Snapshot: Treasury Releases Opportunity Zones Proposed Regulations, President Trump Announces New Plan for Tax Cuts
In This Week's Edition of Snapshot…
- Talk of New Tax Cuts Comes as a Surprise to Many
- Opportunity Zones Regulations Released by Treasury
- President Appoints New White House Counsel After McGahn Resigns
- State Ballots: More than Electing Leaders and Legislators
Last Thursday, Sen. Kamala Harris (D-CA) released a proposal to cut taxes for the middle-class—fueling speculation that she is considering a run for president in 2020. Her plan, known as the LIFT the Middle Class Act, would provide a $6,000 tax credit for families earning up to $100,000/year and a $3,000 tax credit for individuals earning up to $50,000/year. Under this proposal, recipients could claim the tax credit (up to $500/month) throughout the year to help “address the rising cost of living.” There is not yet an official estimate for how much this plan would cost, but according to a new report from the Tax Foundation, the plan “would reduce federal revenue by $2.7 trillion between 2019 and 2028.” Senator Harris’ office shared that they plan to pay for it, in part, by repealing provisions of the Tax Cuts and Jobs Act that benefit taxpayers earning more than $100,000/year.
To the surprise of Republican leaders in Congress, President Trump weighed in on the tax conversation on Saturday after a campaign rally in Nevada, telling reporters that “We are looking at putting in a very major tax cut for middle income people. And if we do that it will be sometime just prior to November.” Treasury Secretary Steven Mnuchin was quick to add that he was working diligently with House Ways and Means Chairman Kevin Brady (R-TX) to develop the new tax plan and that they would release something “shortly.” Chairman Brady released a statement on Tuesday, stating, “We will continue to work with the White House and Treasury over the coming weeks to develop an additional 10 percent tax cut focused specifically on middle-class families and workers, to be advanced as Republicans retain the House and Senate.” Senate Finance Committee Chairman Orrin Hatch (R-UT) indicated his support for President Trump’s tax cuts on Wednesday, but predicted that it is “highly unlikely” Congress will pass another tax cut this year.
Since the House is in recess until after the midterm elections, there is speculation around Washington that this may be a ploy to boost the Republican platform ahead of Nov. 6. The Wall Street Journal reports, “’This empty rhetoric is an admission by Donald Trump that his tax law only helps corporations and the donor class,’ said Sen. Ron Wyden (D., Ore.) ‘The middle class will see straight through this scam just like they did with Trump’s broken promise to deliver $4,000 wage increases.’”
The substance of this plan remains unclear, but many are watching closely to see if details will be released over the next couple of weeks.
Last Friday, the Treasury Department and IRS released the much-anticipated proposed regulations for Opportunity Zones. Opportunity Zones are areas in low-income census tracks, designated by governors, where private equity investors can invest capital gains in new development ventures in exchange for tax forgiveness after 10 years. According to POLITICO Morning Tax, “Interest in the tax-advantaged zones, which are meant to spur development in economically struggling areas, has surged among potential investors and property owners since the Treasury Department rolled out proposed regulations last week to govern them. Some tax pros say they are seeing a flood of inquiries from clients. ‘It’s not very often that you hear about tax lawyers getting so excited about something,’ said David Shapiro, partner and co-chair of the Tax, Compensation & Benefits Practice at Saul Ewing Arnstein & Lehr LLP.”
There has been great interest in Opportunity Zones—especially among investors. According to The Wall Street Journal, “Billions of dollars have started piling into new real-estate funds targeting opportunity zones. Now that the government has clarified the rules, these fund managers are poised to begin collecting money and investing. But even before Treasury’s announcement, sales activity had already picked up in opportunity zones throughout the country. Eager investors studied maps and bought property, anticipating that prices would rise when the new funds put the money to work. … Sales of development sites in opportunity zones nationwide have spiked 80% in the first three quarters of 2018, compared with the same period last year, according to data firm Real Capital Analytics. Meanwhile, owners have marked up asking prices for land or properties in some zones by more than 50%, market participants say.”
The philanthropic community has also been closely monitoring developments around Opportunity Zones. There is a concern over whether Opportunity Zones will facilitate needed community infrastructure and economic development opportunities for the people who are residents and small business owners who live in these Zones. And foundations are trying to determine what their role will be in Opportunity Zones and if they can use their influence to ensure that this tax incentive will truly generate the positive social impact these communities desperately need.
In light of these questions, the Council will be hosting a webinar next Wednesday (Oct. 31) titled, “Opportunity Zones: Can Foundations Help Communities Get Ready?” The webinar will explore what roles foundations can play in this unprecedented, market-driven investment opportunity. Special guests from the National Governors Association and the Brookings Institution will join the Council’s congressional tax expert to kick off a discussion about how foundations might be players in both the investment aspect of the Opportunity Zones and on the social impact side. A panel of regional philanthropy and Community Development Financial Institutions guests will share their thinking about this unique tax provision and what they are doing to get ready for alignment of philanthropic interests and education of their high capacity donors to co-invest with private equity investors.
On Sunday, Donald McGahn II resigned his position as White House counsel. Mr. McGahn, who was then-candidate Trump’s campaign counsel in 2016 and general counsel during the transition, left the West Wing without a news conference or any public statement.
As White House counsel, Mr. McGahn played a key role in implementing President Trump’s agenda. He supervised the selection process of the recently confirmed U.S. Supreme Court Justices—Brett Kavanaugh and Neil Gorsuch—and worked closely with Senate Majority Leader Mitch McConnell (R-KY) and Judiciary Chairman Chuck Grassley (R-IA) to get both justices confirmed in record time. Mr. McGahn also managed the vetting process for judges appointed to the federal courts of appeals and federal trial court.
Mr. McGahn, who is said to have advised President Trump against the idea of firing Attorney General Jeff Sessions and Independent Counsel Robert Mueller, could go back to the firm of Jones Day in Washington D.C. where he previously served as partner or consider other offers.
President Trump has appointed Pat Cipollone—a Washington DC lawyer—as White House counsel. In the meantime, while Mr. Cipollone undergoes the long background check process, Emmet Flood—a special counsel to the President for outside investigations—is running the counsel’s office.
Exclusive from our colleagues at the National Council of Nonprofits.
Thirty-six governorships and more than 6,000 legislative seats in 46 states are up for grabs this Election Day, but the voter decisions that may have the most lasting impact on states, as well as the work of foundations and charitable nonprofits, will involve the scores of initiatives, referenda, and measures on November ballots. Building on previous “Happening in the States” articles in Washington Snapshot, here are additional ballot measures of interest:
- Arizona: A measure on the ballot, Proposition 126, seeks to amend the state constitution to prohibit the state or any locality from imposing any new or increasing any existing fee, assessment, or tax on any service. Currently, Missouri is the only state that limits sales taxes to goods. The Arizona measure reportedly is opposed by the Koch-backed Americans for Prosperity, which is concerned it would make tax reform more difficult in the future.
- Colorado: The state has two tax-related initiatives on the ballot. The state, which has more than 300 taxing jurisdictions (all with different sales tax rates), will present voters with the ballot question of whether to increase sales and use taxes on various commodities and goods to fund increased transportation spending. Colorado voters are also being asked to approve Initiative 93 which calls for an increase in individual income tax rates, corporate tax rates, and estate tax rates. Both initiatives are significant because the Legislature is effectively prevented from increasing revenues due to the voter-approved Taxpayer Bill of Rights (TABOR)
- Georgia: A voter referendum would clarify that the existing exemption from ad valorem taxation on homes owned by nonprofits for mentally disabled persons applies even when financing for construction or renovation of homes is provided by a for-profit corporation or other entity.
- North Dakota: A constitutional amendment on the November ballot would establish a North Dakota Ethics Commission responsible for adopting rules related to public corruption, elections, and lobbying, including regulation of gifts from lobbyists and campaign contributions.
Governing Magazine provides commentary and a recap of the 154 ballot measures in 38 states in its October 3 article, November's Most Important Ballot Measures.