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November 30, 2015

Eating The Seed Corn: Congress Proposes Repealing Section 1031


By Lucas Ecklund-Baker

Attorney and tax law professor Joseph Darby writes that the economic contribution that Section 1031 like-kind exchanges provide to the economy and federal tax revenue is so significant that repealing the provision for the value of its tax expenditure score is akin to “eating the seed corn.”

Section 1031 exchanges encourage investment, contribute to job growth, prevent a “lock-in” effect, and generate significant taxable revenue. Citing the microeconomic study by Professors David C. Ling and Milena Petrova study, Mr. Darby points out that taxpayers invest, on average, 33 percent more into replacement property acquired through 1031 than non-exchanging buyers. Section 1031 creates a “multiplier effect,” which benefits the taxpayer, vendors and employees, and the government. Forty percent of that additional wealth flows to the IRS.

A repeal of 1031 exchanges would produce devastating long-term consequences, says Mr. Darby. He writes that a repeal of Section 1031 provides a negligible benefit to the IRS–“even if it 'wins,' it loses.”

Read the full article here. (PDF)

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