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Tax Update: House Delays Action on Bill

May 6, 2025

Republicans delayed the rollout and consideration of key elements of the reconciliation legislation, including hearings on tax policy legislation and changes to Medicaid.

Why it matters: The House leadership still wants to pass a bill by Memorial Day, yet competing priorities among members of Congress and the White House are proving to be challenging. 

• SALT: Raising the individual state and local tax (SALT) deduction cap, currently $10,000, is still under debate. New York, New Jersey, and California Republicans have made raising this cap their “red line.” With a five-vote majority, they have enough votes to tank any bill without SALT relief. 
• Business SALT Cap: Colloquially known as B-SALT or corporate C-SALT, this provision has been under active consideration in House discussions. No details have emerged on what specifically would be covered, but conflicting reports indicate it would be pared down or potentially not included.
• Clean Energy Tax Credits: House Republicans have been targeting Inflation Reduction Act (IRA) tax programs as a way to reduce spending or offset some of the new tax cuts. But a group of 21 Republicans sent a letter in March urging leadership that any changes be “targeted and pragmatic” with a mind to future private-sector investment. Another group of 38 House Republicans sent a letter last week asking for a full repeal of the credits. 
• White House Priorities: While the President made no taxes on tips, overtime, and social security key campaign priorities, the White House continues to offer additional items. Last week, the White House told congressional leaders it would seek immediate and full expensing treatment for factory construction, both the buildings and the equipment. 

The big picture: The many loose ends on the tax front may contribute to a delay, but House leaders remain confident of meeting a May deadline. Challenges remain, however.

• The brewing fight on Medicaid, which Democrats are focusing their energy on highlighting, is raising political alarms for some Republicans and even the White House.
• Deficit hawks in the House continue to saber-rattle on spending cuts. Rep. Chip Roy (R-TX) and 20 House members sent a letter urging a number of “meaningful reforms” to Medicaid. 
• The Senate is not planning to mark up legislation, but it will likely have a heavy hand in moderating taxes or cuts once a bill passes the House. 
• The debt ceiling deadlines continue to loom over the entire legislation. Treasury is expected to clarify the “X date” in the next week or two. 

Contact David McCarthy (dmccarthy@crefc.org) with any questions. 

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Legislation to Raise FHA Multifamily Income Limits 

May 6, 2025

Two freshmen senators unveiled a bipartisan bill last week that would raise the loan limit caps for Federal Housing Administration (FHA) multifamily loans administered by the Department of Housing and Urban Development (HUD). 

Click here for the legislative text.

Why it matters: FHA multifamily programs insure loans for construction, rehabilitation, repair, refinancing, and purchase of multifamily rental housing properties. 

• Senator Ruben Gallego (D-AZ) and Senator Dave McCormick (R-PA) introduced the legislation. 
• If enacted, the bill would raise the base FHA multifamily unit income limits that determine eligibility. Those income limits have not been updated since 2004, though they have been subject to annual inflation adjustments and high cost-of-living multipliers. 

By the numbers: The bill would raise the base income thresholds and adjust the index for inflation: 

• The inflationary adjustment index would change from the Consumer Price Index (CPI) to the Price Deflator Index of Multifamily Residential Units Under Construction (published by the Census Bureau).
• Statutory threshold changes would impact the following HUD programs:
  • Section 207 – Multifamily Housing Insurance
  • Section 213 – Cooperative Housing
  • Section 220 – Urban Renewal Housing
  • Section 221 – Low- and Moderate-Income Rental and Cooperative Housing; 
  • Section 231 – Housing for Elderly Persons
  • Section 234 – Blanket Mortgage Insurance for Condos

What’s next: Republicans and Democrats continue to be interested in lowering the cost of housing, both single-family and multifamily. 

• If lawmakers find enough areas of bipartisan agreement, a larger housing-focused bill could move through Congress in the next year and a half. 
• However, methods lowering the costs of housing through subsidies, direct assistance, or supply incentives can provoke sharp disagreements. 
• While there are plenty of areas of bipartisan opportunity, the enactment of any housing policy, on a standalone basis or as a larger bill, will be challenging.

Contact David McCarthy (dmccarthy@crefc.org) with any questions. 

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Economy, the Fed, and Rates…

The Economy, the Fed, and Rates…

Economic Data

• GDP contracted 0.3% in Q1 2025, driven by a 41.3% surge in imports as businesses front-loaded shipments ahead of President Donald Trump's tariffs – imports subtracted five percentage points from GDP growth, marking the largest drag from net exports on record dating to 1947.
• April jobs report exceeded expectations with 177,000 jobs added vs. 133,000 expected, while unemployment held steady at 4.2%. "This jobs print came too early to capture the blow from 'Liberation Day' tariffs – we expect to see much weaker readings in coming months," said Bloomberg Economics.
• ISM Manufacturing PMI surprised to the upside in April, falling less than expected. However, production slowed along with supplier deliveries, while prices accelerated.
• Supply chain disruptions are mounting, with the Port of Los Angeles expecting shipments to drop 35% this week year-over-year. "It's almost like we're speeding towards a brick wall, but the driver of the car doesn't see it yet," noted a toy company CEO.
• McDonald's reported a 3.6% drop in U.S. same-store sales, the biggest quarterly decline since COVID, as uncertainty weighs on consumer spending. "Even $5 value meals have struggled to tempt customers," FT reported.

Federal Reserve Policy

• Fed poised to keep funds rate steady at 4.25 – 4.50 % on May 7, arguing that tariff induced inflation is a supply shock it can "look through" if jobs hold up.
• Markets are pricing in four quarter-point rate cuts this year, though the strong jobs report has prompted economists to push back timing expectations. Barclays and Goldman Sachs now forecast the first cut in July rather than June.
• Treasury Secretary Scott Bessent suggested the Fed should consider cutting rates, noting "two-year rates are now below fed-funds rates. So that's a market signal that they think the Fed should be cutting" – a rare comment on monetary policy from Treasury.
• Fed has "three tools to fight tariff-related inflation, none are ideal," according to analysts: raising rates (won't reverse tariffs), holding steady (allows inflation expectations to drift), or cutting rates (may reinforce price increases).

Treasury Yields and Markets

• 10-year Treasury yields rose to 4.31%, up 7 bps on the week, as strong economic data offset flight-to-quality flows from tariff concerns. Two-year yields jumped 8 bps to 3.82% after traders scaled back rate cut expectations.
• China quietly diversifies from U.S. Treasuries, with holdings down 27% since January 2022 to $759 billion. Officials are exploring agency CMBS and other alternatives amid concerns that "the safety of U.S. Treasuries is no longer a given."
• S&P 500 extended its winning streak to 10 consecutive days, the longest since 2004, erasing all losses from April's tariff shock. The index is still down 8% from its high reached on February 19.

Implications for CRE Finance

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