Why was a provision quietly added to Congress’ final tax bill specifically to benefit the owners of real estate “pass-through” corporations, a group that includes President Donald Trump and Sen. Bob Corker (R-TN)?
The provision in question is a special deduction for “pass-through” corporations — businesses that pass their income to their owners who include them in their personal tax returns. The Senate version of the bill required businesses to actually pay wages to avail themselves of the deduction. This “wage rail” helped ensure they were legitimate businesses and not just people gaming the system. But the final tax reform bill includes a special exemption for real estate companies that pay little or no actual wages.
Republicans attempted to offer an explanation for this provision on Monday afternoon, delivered in the form of a letter to Corker from Sen. Orrin Hatch (R-UT). But Hatch’s explanation ignores the key questions about the controversy and tries to spin the issue into one of process minutiae.
Hatch begins by saying that he is “disgusted” that the media is even drawing attention to the issue. He then sets up two strawman arguments.
Just in: Sen. Orrin Hatch (R-Utah) responds to Sen. Corker's letter. Says he is "disgusted" by media reports abt change in final tax bill to benefit real estate developers. He says House bill had similar provision
[Note: he doesn't deny it's gr8 benefit to developers, inc. Trump] pic.twitter.com/5Il7NB0d40
— Heather Long (@byHeatherLong) December 18, 2017
First, Hatch refers to a statement from Sen. Ron Wyden (D-OR) in response to the last-minute provision that was published in the International Business Times. “This new real estate carve out was airdropped in at K Street’s bidding, widens the proposed passthrough loophole and gives away an even bigger tax cut to Trump and his wealthy friends,” Wyden said. Hatch seizes on the word “airdropped,” noting that there was a similar provision in the House version of the bill.
The provision in the GOP’s final tax reform bill, however, is different than the one that initially appeared in the House version. While the House bill would have allowed any passive owner of a “pass-through” corporation to claim a special deduction, the final version of the tax reform bill is more narrowly tailored to capital intensive businesses like real estate.
“This last-minute provision will significantly benefit the ultra-wealthy real estate investor, including the president and lawmakers on both sides of the aisle, resulting in a timely tax-reduction gift for the holidays,” Harvey Bezozi, a certified public accountant, told Bloomberg News.
Hatch doesn’t even attempt to defend this provision on the merits. Why, in a bill that is supposed to encourage job and wage growth, are lawmakers providing special tax benefits to people who set up real estate corporations that are little more than a legal fiction? Without this provision, people would need to prove that they actually pay people wages before qualifying for the deduction. The entire purpose of the wage test is to prevent the system from being gamed by individuals, which this provision significantly undermines. What is the justification for creating an exemption? Hatch does not say.
Second, Hatch takes issue with the implication that Corker requested the change. (By saying it’s an implication, of course, Hatch acknowledges that no one is actually explicitly making that claim.) “I am unaware of any attempt by you or your staff to contact anyone on the conference committee regarding this provision or any other policy matter,” Hatch writes.
But whether Corker requested the provision or not, Hatch does not dispute that Corker will benefit from it. It is specifically designed to benefit people like him who own pass-through real estate corporations.
Critically, neither Hatch nor Corker has offered a substantive explanation of why Corker is now supporting the final tax bill.
Corker cited deficit concerns to explain why he voted against the Senate version of the bill. The final tax legislation is even worse from a deficit perspective. But Corker and Hatch insist his shift in position had nothing to do with the inclusion of a new provision that improves the tax treatment of Corker’s own real estate investments.
🚨 NEW REPORT from @BudgetHawks : The real price tag of the final tax bill could be $2.2 trillion.
That's *even more* than the Senate bill that Corker voted against, citing deficit concerns.https://t.co/6DICDXfF26
— Seth Hanlon (@SethHanlon) December 18, 2017
If not the “Corker Kickback,” then what changed Corker’s mind? With the Senate vote just a couple of days away, that question still hasn’t been answered.