MBA, Real Estate Groups Urge Support for Invest in America Act

The Mortgage Bankers Association and 16 other real estate organizations urged Congress to support the bipartisan Invest in America Act (H.R. 6726) recently introduced by Kenny Marchant, R-Texas, and Joseph Crowley, D-N.Y.

In a Nov. 21 letter to the House of Representatives, MBA asked members of Congress to co-sponsor and support the Invest in America Act, noting it will create 150,000 to 280,000 well-paying jobs by spurring greater inbound investment in U.S. real estate and infrastructure.

“Today, much of the nation’s infrastructure is crumbling and there are tremendous demands on the federal budget,” the letter said. “The Invest in America Act will mobilize private capital for transportation and infrastructure projects, cost effectively, by removing outdated tax barriers to foreign investment.”

The legislation would repeal the Foreign Investment in Real Property Tax Act of 1980. It called FIRPTA an “anti-competitive outlier” that deflects global capital to other markets because it imposes U.S. tax on any gain realized by a foreign investor when the investor sells an “interest” in U.S. real property. In 2008, the IRS said many of the governmental licenses and permits issued in connection with the leasing of transportation and infrastructure assets should be treated as real property for FIRPTA purposes. As a result, the FIRPTA tax can subject foreign investment in U.S. real estate and infrastructure to a much higher tax burden than applies to a foreign investor purchasing a U.S. stock, bond or investment in any other asset class.

“The complex rules, withholding requirements and onerous tax rate under FIRPTA increase the cost of investment and reduce potential investment returns,” the letter said. “The damage caused by FIRPTA is greatest in mid-size markets, where the scale and profitability of individual projects is not sufficient to overcome the administrative and tax burden FIRPTA creates. Many smaller investors, particularly those willing to invest outside major markets, choose to avoid investing in the United States altogether.”

While FIRPTA’s costs and distortions are substantial, the economic benefits of the Invest in America Act are overwhelming, the letter noted. “Repeal of FIRPTA would unlock capital and stimulate real estate and infrastructure investment in midsize and regional markets throughout the country,” it said.

University of California-Berkeley Professor Ken Rosen recently estimated the net impact on the U.S. economy of repealing FIRPTA. He found foreign investment could increase by up to $125 billion and U.S. GDP could grow between 10 and 30 basis points.

“In short, FIRPTA repeal would expand the availability of capital, improve market liquidity and directly create jobs in construction, finance and real-estate related industries, as well as supporting industries that provide goods and services,” the letter said. “The Invest in America Act should have little, if any, negative effect on federal tax revenue. Because FIRPTA so effectively deters investment activity, the actual amount of tax revenue generated by FIRPTA is minimal. Historically, FIRPTA has produced $50 million or less in revenue per year.”

Joining MBA in the letter: The Real Estate Roundtable, Alternative & Direct Investment Securities Association, American Hotel & Lodging Association, American Institute of Architects, American Land Title Association, American Resort Development Association, American Seniors Housing Association, Appraisal Institute, Associated General Contractors of America, Building Owners and Managers Association International, Federation of Exchange Accommodators, Institute for Portfolio Alternatives, International Council of Shopping Centers, NAIOP, the Commercial Real Estate Development Association, National Apartment Association and the National Multifamily Housing Council.