Construction Groups Slam House 'Pass-Through' Tax-Bill Provisions
Proposal makes design and construction firms ineligible for lower 25% rate
As engineering and construction industry groups study the House Republicans' new, wide-ranging tax bill, which proposes cuts to the corporate rate and some individual's tax liabilities, some see it as a good starting point for an eventual revision of the tax code.
But some major design and construction contractor organizations are sharply criticizing elements of the package, zeroing in on a rate cut that, if the plan were to become law as it now stands, many of their member firms would not get.
The legislation, which GOP leaders unveiled on Nov. 2, has become the party's top legislative priority by far. House Speaker Paul Ryan (R-Wis.) said at a press conference, "With this plan, we are getting rid of loopholes for special interests, and we are leveling the playing field."
Ryan added, "We are making pro-growth reforms so that, yes, America can compete with the rest of the world"—an apparent reference to the bill's cut in the corporate rate to 20% from the current 35%, which is viewed as one of the highest in the world. (Readers can view a section-by-section summary of bill here.)
The House plan also would set a new 25% rate on some of the income for partnerships, sole proprietorships, S-corporations and other "pass-through" entities. Such companies are common in the design and construction industries and are taxed at individual, not corporate, rates, which means some firms are now subject to tax rates as high as 39.6%.
But the new bill, which Republicans have named the Tax Cuts and Jobs Act, specifies that, for the most part, companies in certain service industries, including engineering, consulting, law accounting, financial services and the performing arts, would not be eligible for the 25% rate.
Design groups are unhappy about the exclusion. The American Council of Engineering Companies "is seriously concerned" that the bill "would create serious inequities and competitive problems for thousands of America's engineering firms, which are being excluded from the new 25% pass-through rate," ACEC CEO David A. Raymond said in a statement. He noted that pass-throughs represent a majority of U.S. engineering firms.
The American Institute of Architects also criticized the pass-through omission and doesn't support the bill as it is now written, AIA President Thomas Vonier said in a statement.
Vonier said the House GOP proposal "will unfairly damage the thousands of small and family-owned businesses that organize as pass-through entities." He added, "It undercuts the design and construction sector's role as a primary catalyst of job growth in the American economy."
AIA also isn't pleased that the legislation would repeal tax incentives for historic preservation and energy efficiency in buildings.
The Associated General Contractors of America wants to see lawmakers fix the pass-through language, too. Stephen Sandherr, AGC CEO, said in a statement, "Any failure to address pass-through businesses in the final plan would mean many construction firms would not benefit." AGC has said that more than 80% of its member firms are pass-through entities.
No Infrastructure Funds
Another omission in the House Republicans' plan, in AGC's view, is new revenue for infrastructure. Some in the construction industry have supported the idea of legislation to prod U.S. companies to repatriate at least some of their overseas income, with some of the resulting U.S. tax revenue earmarked for domestic infrastructure improvements.
In recent years, then-House Ways and Means Committee Chairman Dave Camp (R-Mich.) and the Obama administration proposed such a plan, but the idea went nowhere.
The House GOP measure does include repatriation but makes no mention of infrastructure. In fact, the bill would do away with the federal subsidy for private-activity bonds, which have been used to help finance certain infrastructure projects.
A Ways and Means Committee summary of the bill notes that the ban would not affect already-issued private-activity bonds, just new ones. It also would not prevent states and localities from issuing such bonds.
Sandherr said AGC will continue to push to have additional infrastructure funding included in the final tax package. He added, "Tax reform provides an excellent opportunity for the president to deliver on his promise of rebuilding America's aging and over-burdened infrastructure."
The National Association of Home Builders also slammed the proposed legislation. NAHB Chairman Granger MacDonald said in a statement that the proposal "abandons middle-class taxpayers in favor of high-income Americans and wealthy corporations."
Macdonald said the bill "eviscerates existing housing tax benefits," including limiting the mortgage-interest deduction to loans of $500,000 or less, compared with a $1-million cap now.
Republicans hope to push the bill through Congress on an unusually fast track. Ways and Means Chairman Kevin Brady (R-Texas) has scheduled a committee vote for Nov. 6.
President Trump, who Brady says "fully supports" the House GOP proposal, says he wants to see legislation approved by Thanksgiving and enacted by Christmas.
But the Senate also must act. In that chamber, Finance Committee Chairman Orrin Hatch (R-Utah) commended Brady for his proposal. But Hatch also said that, after Ways and Means completes its work, he would be seeking to produce a Finance Committee version.
It almost certainly won't be identical to whatever Ways and Means approves, meaning that the two versions' differences would have to be worked out in House-Senate negotiations.
Congressional Democrats have attacked the bill. At a press conference, House Minority Leader Nancy Pelosi (D-Calif.). called the GOP bill "a giveaway to corporations and the wealthiest."
Democrats are in the minority in both chambers, and their procedural weapons are limited. But the party's Senate leader, Chuck Schumer (D-N.Y.), said, "We're going to fight it tooth and nail."