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The Chairman's Report August 14 2020

The Chairman's Report August 14 2020
Photo Credit: Steve Hayes by is licensed under
Yet Another Unnecessary Solution

One of the areas of the economy severely affected by COVID-19 is commercial real estate, particularly office buildings.

Because many office buildings were forced to close during the pandemic, their tenants were forced to have their people work from home.  Many of these companies discovered working from home worked quite well, and are now thinking the old model of having everyone come to an office might not be the best way to go.  Consequently, they are rethinking their future office needs, and many have decided they will not be needing as much office space as before.

Additionally, a large number of companies leasing office space were financially crippled by the shut-down and will likely either go out of business or have to greatly reduce the size of their operations.  Either way, building owners are looking at a substantial decrease in their revenue.

These economic realities are leaving increasing amounts of office space vacant. That’s putting many building owners at risk of defaulting on the loans they took out to purchase or construct their buildings, and means lenders may be foreclosing on a large number of these buildings. Bottom line, expect the value of these office buildings to decline sharply.

On the up side though, many of these buildings are in good locations with adequate parking.  As a result, there are some groups looking to acquire these buildings and convert them to condominiums.

Rather than letting the free market economy adjust to the new real estate reality, Congressman Kevin Brady, formerly the Chairman of the House Ways & Means Committee and now the ranking Republican on the committee, has suggested the Infernal Revenue Code be changed to allow investors in real estate to expense their investment in the year they purchased the real estate, not over 27.5 to 39 years as is now the case.

Congressman Brady is correct about one thing, his proposal will stimulate commercial real estate investment.  Since most commercial real estate is purchased with 10% to 30% down with the balance paid off over 15-30 years, Congressman Brady’s proposal would allow an investor to:
 
  • Purchase a $10 million real estate project in 2021
  • Make a down payment of $2 million and finance $8 million over 20 years
  • Receive a tax deduction for the full $10 million for the 2021 tax year
  • If you are in the 35% federal income tax bracket, that would save $3.5 million in federal income taxes
  • Not a bad guaranteed return in one year!


Problems With Congressman Kevin Brady's Proposal

As will be discussed below, if we eliminated the federal income/payroll tax system and adopted The FAIRtax, this “so-called solution” by Rep. Brady wouldn’t be needed.  However, there are a number of things wrong with Congressman Brady’s proposal.

First, you will have a large number of people who will put partnerships together. These partnerships will purchase real estate not because they believe it's a good investment, but because they can secure immediate tax savings.

An investment of $500,000 into the $10 million real estate project described above would result in federal income tax savings of between $750,000 and $1 million, depending on their state and federal tax bracket.

Second, prices for commercial real estate will increase, not because of economics, but because of the tax benefits.  When most of the properties don’t generate sufficient revenue to pay the operating expenses and the mortgages, there will be more foreclosures and more problems for the real estate market.

Third, this solution is like treating a severe toothache with a shot of Novocaine.  It relieves the pain for a while, but it doesn’t fix the problem.  As the Novocaine wears off, the pain returns, often worse than before.

The Permanent Solution Is The FAIRtax

Congress is constantly proposing “fixes” for the income/payroll tax system, which are all doomed to fail.  It’s like grabbing a balloon, it will always bulge out somewhere else.  While expensing commercial real estate will temporarily boost the market, it isn’t solving the problem.

However, eliminating the income/payroll tax system makes several things happen:
 
  • Investors will have no income tax to pay.  This means they will have a full 100 cents of every dollar they earn with which to make their investments
  • Consequently, they will have as much as 40% more dollars in their accounts to use for their purchases
  • Investments are not subject to The FAIRtax
  • The proceeds from the sale of investments in real estate are not subject to The FAIRtax
  • Investors will again be looking for good investments and will no longer be lured into making bad ones by the promise of quick tax savings

When sellers of real estate receive the proceeds of their sales and then use that money to purchase new retail goods and services, they will pay The FAIRtax like everyone else.

Conclusion

If the income/payroll tax system weren’t so devastating to our economy and our citizens, we could have a good laugh watching Congress trying to fix it. It would be like watching someone trying to drain the Mississippi River with a teaspoon.

We all know the system is broken and corrupt, but still the people we elect to look out for our best interests keep insisting they can make it work.

Of course, the dirty little secret they don’t want us to know is they are actually working for the lobbyists, The Ruling Class and the special interests.  And the sad truth is when they win, we the people lose.

Before he became Chairman of the Ways and Means Committee, Kevin Brady was a long-time cosponsor of The FAIRtax.  He knows The FAIRtax eliminates the need for all of these “fixes” being proposed to the unfixable income/payroll tax system.

The FAIRtax benefits the economy and the American people.  The choice is simple, do you want to benefit The American People or The Ruling Class and their minions in D.C.?  We have “tried everything else” and now we need to do the Right Thing.

Demand Congress To Pass
The FAIRtax—the only “Fair tax”!

The author George Bernard Shaw said these words in a play he wrote, "You see things; and you say 'Why?'  But I dream things that never were; and I say 'Why not'?”

Isn’t it time for us to ask, “Why not?” 

President Trump, Embrace The FAIRtax, the only real tax reform!  Stand up to the Swamp.  They will oppose you anyway because they see you as a threat.  What have you got to lose?

The truth is the truth!  Remember, if we don't continue to tell the truth and demand a change, then George Orwell's "1984" quote may foretell our children's future: “If you want a picture of the future, imagine a boot stamping on a human face, forever"
Thank you for staying FAIRtax strong!
 
Yours In Liberty!   Yours In Freedom!

Steve Hayes
Chairman, Americans For Fair Taxation


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