One sub-bill in the Progressive-Democrats’ reconciliation bill would have removed a loophole that lets foreign purchasers of US real estate dodge a tax that could reach 30% on the profits generated by those holdings.

The loophole works like this:

Instead of buying a building directly, a foreign investor creates a shell company in an offshore location like the Cayman Islands.
That shell company then lends money to a US entity called a blocker corporation, which in turn buys the building. Instead of paying any profits from the building directly to the foreign investor, the blocker corporation sends interest on its loan to the offshore shell company, which then passes it on to the foreign investor. By taking this detour, the foreign investor avoids the tax on foreign real-estate owners.

It works because the blocker is a corporation domiciled in a territory that’s a US tax haven, and so those corporations avoid the tax.

There are a couple of implications from closing this loophole.

[P]roponents say it could raise billions in tax revenue.

That works for me. On the other hand,

Property owners worry it could also lead to fewer foreign purchases of US commercial real estate.

I’m having a hard time seeing any serious downside to that beyond a temporary (I say) downward pressure on real estate prices, or more likely, a slowing of increases in real estate prices, in the initial period following the closure of the loophole. After that initial period, though, the real estate market would adjust to the new regime, and real estate prices would resume their normal behavior.

If this sub-bill is a good idea—and I think it is, at least in principle—than it should be excised from that reconciliation foolishness and presented by itself in a clean, stand-alone bill. In January.