Major Hurdle for a Tax Code Overhaul: Trump’s Own Field

Many tax experts say a key element to any fundamental overhaul is getting rid of certain deductions for businesses — the “special-interest giveaways that are masked as tax breaks,” as House Republicans describe many of them in their own proposal.

.. But there is a major roadblock to that fundamental change, and it comes from a sector well known to the president: the real estate industry.

.. “There’s probably no special interest that’s more favored by the existing tax code than real estate,” said Steven M. Rosenthal, a real estate tax lawyer and senior fellow at the centrist Urban-Brookings Tax Policy Center. “It’s really hard to take that industry on.”

.. the tax deduction for interest payments by businesses, a provision that Mr. Trump has used to great advantage in what little has been seen of his past tax returns. The House Republican plan calls for eliminating the deduction as part of an overall plan, helping offset lower tax rates. The nonpartisan, conservative-leaning Tax Foundation says the provision could be a $1.5 trillion proposition over the next decade.

.. After the last major overhaul of the tax code, in 1986 — under a Republican president, Ronald Reagan, and a Democratic Congress — it was a Democrat, Bill Clinton, who signed legislation that restored lost real estate tax breaks seven years later.

.. Start, for example, with the ability of businesses to deduct interest payments. More than in just about any industry, real estate investors use leverage — borrowed money — to enhance returns. They lower their taxes by deducting interest payments.

.. a growing number of economists and tax experts have called for abolishing the deduction, as does the House Republican tax plan, “A Better Way,” on grounds that it distorts capital markets by favoring debt over stock.

.. Mr. Trump came out in favor of another key element of the House Republican plan: immediate deductibility, or expensing, of capital expenditures, rather than the practice of depreciating assets over time.

.. “Reagan didn’t get into the details,” Mr. Burman said. “But he made the calls, he gave the speeches, and he got people excited about the idea of fixing our broken tax system.”

“It’s hard to imagine President Trump doing that,” he said. “Because at the end of the day, the existing tax code is great for people like him.”