While commercial real estate associations cannot endorse presidential candidates, that isn’t stopping them from monitoring and assessing Sen. John McCain's and Sen. Barack Obama’s prospective economic policies. And by and large, the proposals most favorable to the industry are the Republican’s.
Take the matter of taxes. McCain rates as more industry-friendly on a range of proposals including on capital gains, corporate earnings, income taxes and carried interest. He has pledged to retain President Bush’s tax cuts. McCain has proposed keeping the capital gains rate where it now stands: 15 percent. Obama, meanwhile, has said he would raise capital gains taxes to 20 percent for families that earn more than $250,000 a year.
On the premise that capital gains income drives investment, McCain’s lower rates could encourage greater investment in shopping centers, says Chuck Achilles, staff vice president with the Institute of Real Estate Management. IREM declines to back a particular candidate, but its members have been asking IREM for guidance, Achilles says. ICSC also favors a lower capital gains rate.
On the issue of corporate taxes, Obama favors the status quo—a tax rate of 35 percent. McCain has proposed lowering the rate to 25 percent. “We now have the second highest corporate tax rate in the world, making America a less attractive place for companies to do business,” says McCain’s website. “American workers deserve the chance to make fine products here and sell them around the globe.” A lower corporate tax rate would also benefit shopping centers, Achilles says.
In the past, McCain opposed Bush’s tax cuts. He now supports them, and if maintained, the cuts would put more money in the pockets of some income earners, potentially aiding retailers’ profits. Obama would increase the tax rate for families making more than $250,000 a year. These bigger earners generally give retailers more business, says Achilles. And unlike McCain’s plan for income taxes, Obama’s would also take a bigger chunk of change from those in higher income brackets.
In recent years, the industry has closely watched the issue of taxation on carried interest, which Congress has taken up without conclusive action. Carried interest is the share of profits doled out as compensation to a general partner in a limited partnership or limited liability corporation. It affects, for example, private equity partnerships. At stake is whether carried interest should be taxed at the capital gains rate—now 15 percent—or as ordinary income, at a rate of as much as 35 percent.
Lawmakers who favor a higher tax rate on carried interest have often cited employees of investment funds as their chief target. But retail trade groups oppose a higher tax rate because many real estate deals are arranged as partnerships. In 2005, more than 46 percent of partnership tax returns were tied to real estate, according to ICSC. Carried interest income cushions the risk a managing partner takes on as part of a partnership, the group says.
“By undercutting the economic incentive to build a project or redevelop an underutilized property, this change could significantly drive away investment into the commercial real estate sector,” said ICSC in a statement. Real Estate Roundtable and the National Association of Real Estate Investment Trusts have also opposed higher taxes on carried interest.
A bill to raise the carried interest tax passed the House of Representatives this year, but the Senate did not act on it. ICSC expects the issue to come up again in the next Congress, where a boost in the Democratic ranks could give the issue added traction. Obama has said he favors taxing carried interest as ordinary income, while McCain has disparaged the effort.
Observers also distinguish between Obama and McCain regarding their views on several matters besides tax policy. One is the Employee Free Choice Act-- legislation backed by organized labor that would allow a majority of employees at a workplace to unionize by signing cards rather than having to hold elections.
ICSC opposes the act. “ICSC believes the ability of the American worker to vote privately, without peer pressure or fear of recrimination in the workplace, is worth preserving and is a critical aspect of the American democratic tradition,” the group says.
Obama and McCain differ sharply on the matter. Obama co-sponsored the act and expressed his support for it in June 2007. That same month, McCain voted against a motion in the Senate that would have sped up deliberations over the bill. The act never made it to a vote. McCain also co-sponsored a bill that would ensure employees’ rights to a secret-ballot election.
The candidates share some common ground in the realm of energy policy but differ in a key area of interest to ICSC. Obama supports a goal of making all new buildings in the country carbon-neutral by 2030. He also favors a national goal of improving new-building efficiency by 50 percent and making existing buildings 25 percent more efficient.
“ICSC does not support this inflexible, overly ambitious goal,” the group says. McCain has not addressed specifics of building efficiency but has generally supported state rather than federal regulations of such matters.
Ultimately, the industry will have to wait to see how the winner of next week’s contest puts their energy policies into action, says Kent Jeffreys, a staff vice president in ICSC’s office of global public policy. “That’s the way campaigns are,” he says. “They don’t give specifics.”
--Mike Janssen