What Are the Implications of the Taxpayer Protection Pledge for the 1031 Exchange?

[Editor's note: 1031Gateway supports the efforts of groups like www.SaveThe1031.org, which is exposing the devastation this tax reform proposal would unleash on our economy and mobilizing Americans to make their opposition known to Congress in order to stop this bill. Please visit www.SaveThe1031.org and fill out their form to directly send individual letters to your representative and senators in Congress, urging them to fight for the 1031 exchange.]

About the Taxpayer Protection Pledge

ATR, or Americans for Tax Reform (@TaxReformer), a Ronald Raegan-era taxpayer advocacy group whose stated goal is "a system in which taxes are simpler, flatter, more visible, and lower than they are today," has sponsored what they have titled the Taxpayer Protection Pledge (TPP) since 1986. The TPP a written promise made by lawmakers and candidates for office to their constituents that commits them to oppose tax increases. The version signed by federal lawmakers includes two articles:

  1. Oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses.
  2. Oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

Nearly 1,400 elected officials have signed the Pledge. You can look them up here.

Implications for Comprehensive Tax Reform

According to ATR's website, "the Pledge prevents politicians from raising taxes by eliminating this-or-that tax preference by itself. Rather, the Pledge tells politicians that such base broadening is acceptable only in the context of tax reform—broaden the base, lower the rates, and don’t raise the net tax burden in the aggregate on American families and employers."

Implications for the 1031 Exchange

The founder and president of American's for Tax Reform, Grover Norquist (@GroverNorquist), has penned a letter to Congress in opposition to repealing section 1031 “like-kind exchanges” as part of any tax reform. He argues that repealing section 1031 would be economically destructive. While pro-growth tax reform ought to repeal distoritve business credits and deductions (tax loopholes) in exchange for lower marginal rates that level the playing field, the like-kind exchange is not a tax loophole and eliminating it would not increase tax revenue. In fact, eliminating the 1031 Exchange would create a lock-in effect that would prohibit a range of productive transactions and new investments. This would result in less productive deployment of capital and hurt economic growth.

 

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