An at-the-wire deal that held the government at the brink of the "fiscal cliff" will hike taxes for some small construction firms and give companies a short reprieve from mandatory spending cuts slated to hit most federal construction accounts on Jan. 2. All in all, the tax increases would have been much steeper and more widespread and the budget cuts immediate if there had been no deal.
But the product of the agreement, the American Taxpayers Relief Act, which Congress approved Jan. 1 and President Obama signed the next day, is only a short-term fix. New fiscal deadlines and more partisan fights are just weeks ahead.
Most critically, by about March 1, the U.S. will hit its $16.4-trillion debt ceiling and the White House will seek an increase. The cliff deal's two-month delay in mandatory spending cuts ends March 1. Congress also must approve appropriations to carry construction and other programs through fiscal 2013 by March 27, when a stopgap bill lapses. Talks on those issue haven't begun, but key lawmakers already have laid down markers. Republican leaders say further tax hikes are off the table. Democrats disagree.
For now, construction's focus is the new cliff law. Jeffrey Shoaf, Associated General Contractors senior executive director for government affairs, says the measure is generally positive for the industry. For example, it raises the top estate-tax rate to 40% from 35%. It locks in the rate permanently. Shoaf says, "And having it be permanent is terrific. It allows you to actually do estate planning in a logical fashion." It continues to exclude estates up to $5.1 million from the tax, adjusted for inflation.
Taxes will rise for partnerships and other firms with incomes above $400,000 and taxed at individual, not corporate, rates. The law extends for one year such tax breaks as 50% bonus depreciation and Section 179 expensing of capital purchases.