Structural Tax Reform and the Next REIT Revolution

Although often treated as monolithic, contemporary tax reform typically bundles disparate provisions into a single legislative act, or tax package. This tax package may support a discrete set of congressional objectives, but the vagaries of the tax legislative process make disjunctures likely. Multiple provisions, taken together, may advance ends unforeseen— and perhaps unforeseeable—by legislators. Within a tax package, these disjunctures often emerge post-enactment, during implementation by both the Treasury Department and private actors. This article denotes these emergent disjunctures as “structural noncoordination.” Structural noncoordination—when provisions in a tax package, taken together, advance unanticipated ends—is not unique to tax law. Ordinary legislative processes, such as logrolling and horsetrading, lead to structural noncoordination. The tax legislative process, however, has unique features that tend to yield structural noncoordination. Policy norms that favor basebroadening tax reform, self-imposed constraints derived from quantitative budget scoring, and the cross-cutting aspects of tax planning each facilitate structural noncoordination. To illustrate the problem of structural noncoordination, this article develops a detailed case study. This case study describes how a recent major tax package, the Tax Cuts and Jobs Act of 2017, created a constellation of provisions that enhanced incentives for businesses to move real property into tax-favored entities known as real estate investment trusts (REITs). These incentives for “REIT-ification” stand at odds with the stated purposes of these individual provisions, as well as any holistic idea of legislative intent. Instead, this ad hoc assemblage illustrates how structural noncoordination can emerge from disparate provisions in a tax package. This article concludes with several possible solutions, ex ante and ex post, for the problem of structural noncoordination.