You Thought Canceling Keystone XL Was Bad? A New Biden Tax Proposal Would Threaten 568K Jobs, Stifle Real Estate Market
One of the first things President Joe Biden did after taking office was to kill thousands of jobs by canceling the Keystone XL pipeline. Nearly five months later, he has a new proposal that could be even more destructive.
According to The New York Times, Biden wants to “rein in” Section 1031 of the tax code, which governs “like-kind exchange” transactions. The provision allows real estate investors to roll over profits from the sale of one property to the purchase of another without paying taxes on the gains.
The policy was first enacted in 1921 following World War I, and it has encouraged investment in the real estate market ever since. Yet in order to fund his outrageous spending proposals, Biden now wishes to challenge the 100-year-old policy.
Specifically, the Biden administration has proposed limiting the yearly deferral allowed in like-kind exchanges to $500,000 for single filers and $1 million for married couples. This would all but kill like-kind exchanges, real estate investors told The Times.
“The effort would generate $19.5 billion in tax revenue over 10 years, according to the administration’s estimates, and help pay for its $1.8 trillion proposal to help American families attain a middle-class lifestyle,” The Times reported.
Of course, the contention that Biden’s so-called “American Families Plan” would actually help families attain middle-class status is dubious at best. What’s more, like-kind exchanges are already generating plenty of money for the economy on their own.
According to a May study by accounting and consulting firm Ernst & Young, taxes on the federal, state and local levels paid by businesses using like-kind exchange rules would total approximately $7.8 billion in 2021 alone.
In addition to tax revenue, the firm found that like-kind exchange rules support a massive number of jobs. The report said that a total of 568,000 jobs are supported by like-kind exchange rules in 2021.
Contrary to the left’s argument, it is not just high-end investors who benefit from this rule. Ernst & Young said that jobs in areas such as leisure and hospitality, education and health services, manufacturing and more are supported by the investments that like-kind exchanges fuel.
To be fair, it is not clear that all 568,000 of these jobs would completely disappear if like-kind exchanges were eliminated. However, they would certainly be put at risk if the real estate market stalls, and layoffs would almost certainly follow.
“This proposal definitely concerns me,” investor Michael Clarke told The Times. “It would trap capital because people won’t want to sell, and that would harm the economy.”
Other investors shared the same sentiment. Hessam Nadji, the president of real estate brokerage Marcus & Millichap, added that this is a particularly bad time to try to destroy Section 1031.
As if that is not reason enough to deter Biden from this proposal, the plan also has the potential to go against his stated “anti-racism” platform. William Brown, a black American and founder of Springhill Real Estate Partners, said that like-kind exchanges help young black investors break into the market without being subjected to debilitating taxes.
“More and more minorities want to become real estate investors because they can see the benefit of building wealth and income,” he said. “Getting rid of the 1031 exchange would hamper their ability to do that, because most investors cannot afford to sell a property and then buy something else after paying taxes.”
Biden’s entire argument for ending like-kind exchanges is that he wants to make the tax code “fairer” for working-class Americans. A quick glance at the evidence, however, would have revealed to him that these exchanges benefit many types of Americans, not just rich ones.
No, Biden does not want to help more families “achieve a middle-class lifestyle.” He wants to push his own radical policies, and he wants to do so under the guise of helping people.
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