Construction and engineering companies--and individual workers on jobsites or in offices--would benefit from the "framework" of an agreement between President Obama and congressional Republicans on a package of new tax breaks and two-year extensions of current rates and other incentives.

White House photo by Pete Souza

Obama announces outline of deal with Republicans on taxes

The framework deal, which Obama announced on Dec. 6, next goes to Congress. Key Democrats there appear not to be on board yet. Leading Republicans' initial reactions were positive. Lawmakers must take action by Dec. 31, when many of the tax provisions at issue are slated to lapse.

Construction and engineering industry officials like the framework in general and expect its elements to make it through Congress, with a final bill to arrive on Obama's desk by the end of the year. But before the measure gets to the White House, construction groups hope lawmakers will add other provisions.

For example, some construction-backed tax breaks due to expire--such as Build America Bonds and the renewable-energy credit�are not in the package.

A senior administration official says the House and Senate need to make decisions on a "long list of rather small 'extenders'," which would include Build America Bonds and the energy credit. He adds, "I don't think there are any major differences" on Capitol Hill concerning those items.

A key part of the framework is a two-year extension for individual tax rates dating from 2001 and 2003 that were scheduled to expire on Dec. 31.

Besides the rate extensions, another benefit for individual taxpayers is the plan's proposal to reduce employees' Social Security payroll taxes to 4.2%, from the current 6.2%, for one year.

A senior administration official says that provision would cost $120 billion over two years. He adds that other federal funds would be transferred to make the Social Security trust fund whole.

Also in the package is a continuation of a provision that protects many individuals from being subject to the alternative minimum tax.

Those provisions for individuals also would be a boost for small design and construction firms organized as partnerships or Subchapter S Corporations, which are taxed at individual, not corporate, rates.

"So many of our members, especially the smaller [companies], file their business taxes under individual tax rates," says Geoff Burr, the Associated Builders and Contractors' vice president for government affairs. "So some of the tax rates on so-called higher earners would have had an extremely negative impact on our members that are extremely hard hit."

Family-owned construction companies would gain from the framework's proposed change in the estate tax, effective in 2011. The plan would exempt estates of up to $5 million from the federal tax, compared with a $1-million exclusion in 2011 under current law.

In addition, the plan would tax estates exceeding $5 million at a 35% rate, compared with a 55% rate in 2011 under current law.

There also are other incentives for businesses, notably a provision allowing all companies to write off the full cost of capital goods in the year those items are purchased. Moreover, the research and development tax credit, which is popular among businesses, would be extended for two years.

The framework is a set of compromises. For example, Republicans--reflecting views of businesses, including those in the construction industry--had wanted the 2001 and 2003 rates to be extended permanently for all income levels. But the GOP negotiators settled for a two-year extension.

On the other hand, Obama, like many other Democrats, had wanted the rates to rise for those earning more than $250,000 per year, but dropped that in exchange for other provisions.

They include a 13-month extension of unemployment benefits and a two-year continuation of the Earned Income Tax Credit, child tax credit and a credit for college costs.

Obama said, "I have no doubt that everyone will find something in this compromise that they don�t like. In fact, there are things in here that I don�t like--namely the extension of the tax cuts for the wealthiest Americans and the wealthiest estates."

But he noted that the extensions last only two years and added, "As for now, I believe this bipartisan plan is the right thing to do" for jobs, the middle class, business and the economy.

Industry groups say they like the depreciation provision, the two-year R&D credit extension and the higher estate-tax threshold.

But they hold out hope that Congress will add other items that would help construction and engineering firms.

Steve Hall, the American Council of Engineering Companies' vice president for government affairs, says his group would like to see a repeal of the requirement that firms file a 1099 form whenever they do at least $600 in business with any vendor.

ACEC also favors adding a provision to remove the volume cap for private-activity bonds that fund water projects. Hall says that would be a "low-cost way...to finance infrastructure projects and promote jobs and economic growth."

But he notes, "I think the realization is, we�re not going to get everything we want in this package."

Initial reaction to the framework from Democratic leaders fell short of a ringing endorsement.

House Speaker Nancy Pelosi (D-Calif.) praised the provisions that Democrats backed, such as cuts for the middle-class, and criticized the Republican-backed elements, such as the estate-tax provision.

Pelosi said, "We will continue discussions with the President and our caucus in the days ahead.�Democratic priorities remain clear: to provide a tax cut for working families, to promote policies that produce jobs and economic growth, and to assist millions of our fellow Americans who have lost their jobs through no fault of their own."

There was no initial comment from Senate Majority Leader Harry Reid (D-Nev.). Jim Manley, Reid's top spokesman, said the senator planned to discuss the framework with his fellow Senate Democrats on Dec. 7.

Leading Republicans' comments were on the positive side. Senate Minority Leader Mitch McConnell (R-Ky.) said, "Members of the Senate and House will review this bipartisan agreement, but I am optimistic that Democrats in Congress will show the same openness to preventing tax hikes the administration has already shown."

Rep. Dave Camp (R-Mich.), who is expected to chair the Ways and Means Committee in the new Congress, said, "This framework will allow us to extend all current tax rates and give economic recovery and job creation a chance."