Photo By AP Wideworld
Obama meets with Senate and House leaders as talks begin to try to prevent tax increases and spending reductions from taking hold.

With only weeks remaining before a combination of tax hikes and spending cuts are set to kick in, construction industry officials are anxiously watching the progress of White House and congressional negotiations to stave off that painful outcome.

If there is no deal and the economy tumbles off the so-called fiscal cliff, construction could be clobbered by three strong punches: infrastructure spending reductions, higher taxes for many small or family-owned companies and an economic downturn that would almost certainly curb demand for new projects.

On the other hand, if those at the negotiating table do strike a deal, it still may include spending cuts and tax increases.

At ENR press time, five weeks before the end of 2012, the outcome is far from clear. Andrew Goldberg, American Institute of Architects managing director for government affairs and outreach, says,"I think the chances are good that there will be enough of a deal in place … to prevent us from going off the cliff." He believes the administration and Congress will hold off the tax hikes and mandatory budget sequestration cuts "but put in force some kind of a process to come back in three or six months or a year to kind of do the heavy lifting."

Cathy Connor, Parsons Brinckerhoff senior vice president and manager of federal government affairs, says resolving such wide-ranging tax and spending matters by the end of December will be difficult. "If they don't do it in December, I think that they will obviously postpone sequestration, extend the various tax issues and work on it early next year," she says. "I still have confidence that Congress will resolve this one way or the other [so] that we will not go over the fiscal cliff. Whether they can do it by December or not, I don't know."

Jeffrey Shoaf, Associated General Contractors senior executive director for government affairs, says there is a "50% chance, maybe," that an agreement won't be in place by Dec. 31, "simply because they've failed before." Shoaf cites deficit-cutting proposals from a 2010 panel led by former Sen. Alan Simpson (R-Wyo.) and ex-Clinton White House Chief of Staff Erskine Bowles as well as the 2011 congressional "supercommittee," neither of which won enough votes from their members. Looking at recent comments by key negotiators, Shoaf adds, "I haven't seen a huge change in the rhetoric to signal that they're getting closer to an agreement."

Much of that rhetoric has centered on taxes paid by individuals or households. President Obama has said he wants those with incomes over $250,000 to pay more than they do now. House Speaker John Boehner (R-Ohio) opposes raising any tax rates but says the GOP is open to increasing revenue via changes in the tax code.

Any boost in individuals' taxes—from higher rates, caps on deductions or other revenue-raisers—also would affect design and construction firms that are set up as partnerships, sole proprietorships or subchapter S Corporations, which are taxed at individual, not corporate, rates. AGC and AIA say about 80% of their member firms would fall into that category.