While you're watching President Reagan launch his tax reform juggernaut on TV on Tuesday, bear in mind the hard economic issues that the plan raises for anyone involved in real estate.
Bear in mind, too, that the bottom-line odds for action on comprehensive tax-code simplification this year or next are steep, the White House's heady predictions for quick passage notwithstanding.
The key facts about tax reform for real estate are these:
First, the changes proposed by the administration inevitably will mean higher rents for America's tenants. That is not a real estate industry prediction. That is an economic conclusion acknowledged by Treasury Department tax officials, and confirmed repeatedly in studies by academic, as well as industry, groups.
How large a rent surcharge tax reform will impose on tenants, and how quickly the increases will occur, are questions open to debate.
The Reagan administration's own real estate economists at the Department of Housing and Urban Development say the reforms will tack an extra 20 percent on to rent levels over the next seven years.
Economists hired by groups with obvious axes to grind -- such as home builders, apartment developers and commercial real estate owners -- come up with rent increase surcharges two to three times as large over the coming five to 10 years.
The studies agree that existing tax benefits and subsidies for residential and commercial real estate have kept rents lower than they would be without them. To compensate for their loss, property owners either will have to increase the level of rents or bail out.
Whatever the size of the coming surcharges, though, the essential political fact to keep in mind is that the Reagan tax-reform plan currently offers nothing to pay for them.
Will marginally reduced tax brackets for millions of middle-income tenants really be worth it when the monthly rent bill arrives with a fat surcharge? Will Congress have to devise new loopholes in later years to give tenants a fairer tax shake relative to homeowners, who will continue to write off their full mortgage-interest payments at a cost to the Treasury of billions of dollars every year?
These are questions that could become increasingly important as the political debate over tax policy progresses.
A second fact to keep in mind about the president's package: Although seemingly beneficent to the nation's 60-million-plus homeowners, its direct and indirect effects ultimately may not be favorable.
For example, the Reagan reform plan will disallow local property-tax deductions for all homeowners. If you live in a state with relatively high property taxes, the cost of owning your house could rise by several hundred dollars a month over your current outlays. The cash resale value of your house to a buyer would be limited by this extra tax burden.
True, you'll still be able to deduct your mortgage-interest payments under the Reagan plan, but they'll be worth less to you in after-tax dollars than they are today. You'll probably be in a lower overall tax bracket -- with 35 percent the highest you can go -- and therefore the interest deductions you can take will give you less bang for your buck.
A third point to remember: Some of the savviest tax experts in the country -- Republicans and Democrats alike -- happen not to believe that a modified flat-tax system is the fair way to go about streamlining the Internal Revenue Code.
Take, for example, Donald Susswein, who was Senate Majority Leader Bob Dole's tax counsel for the past several years on the Republican-controlled Senate Finance Committee, while Dole was chairman of that key tax-writing unit.
Susswein, author of a provocative new book titled "How to Understand and Survive the Coming Tax Reforms," is passionately in favor of streamlining the federal tax system.
But he faults the Reagan administration for coming up with a program that "hasn't been preceded by any real analysis of its potentially damaging short-term and long-term economic effects" on capital-intensive sectors of the economy.
Very possibly, the quick, massive tax changes advocated by the administration could produce an economic disaster several years down the road, an "economic winter" requiring a return to higher marginal tax rates, Susswein argues.
He advocates, instead, a 10-year phase-in of what he calls a "20-20-20" system: a 20 percent across-the-board federal "value-added tax" similar to those in widespread use in Europe; a one-rate 20 percent personal income tax, but only for households with incomes above $50,000; and a 20 percent corporate income tax.
You want a system without loopholes that all segments of the public can have faith in and contribute to -- including homeowners, tenants, landlords and fat cats?
Take a look at Susswein's 20-20-20 system -- or some version of it -- before lining up blindly to take the tax plunge with Ronald Reagan.