Construction and engineering groups are sifting through the sweeping tax-code rewrite that the Senate approved on Dec. 2, but some see it as better than the House-passed version, particularly in its treatment of partnerships, sole proprietorships and other “pass-through” entities.
The Senate’s passage of an estimated $1.4-trillion-plus package of tax cuts early in the morning of Dec. 2 by 51-49, almost completely on party lines, marked a major step forward for the legislation, the top legislative priority for congressional Republicans and the Trump administration.
Next, Senate negotiators will have to work out differences between their bill and the $1.4-trillion version that the House passed on Nov. 16.
Some senators who felt that earlier versions of the Senate measure didn’t provide enough tax relief to pass-throughs, which are taxed on individual, not corporate, rates.
The bill’s prime author, Finance Committee Chairman Orrin Hatch, and other GOP leaders won votes by increasing a deduction for pass-throughs to 23%, from 17.4% in an earlier version.
But like other Senate bill provisions dealing with individual taxes, like the new set of tax brackets and thresholds, the pass-through deduction would expire Dec. 31, 2025.
The bill’s cut in the corporate rate, which applies to so-called C-corporations doesn’t kick in until 2018 but it becomes permanent after that.
Stephen Sandherr, Associated General Contractors of America CEO, said in a Dec. 1 statement that the Senate bill had been “substantially improved” in the days leading up to the final vote.
Sandherr noted that a majority of construction firms are pass-throughs, and noted “the Senate proposal has wisely increased the pass-through deduction from 17.4% to 23%” but added that “the fact that the cut is temporary is concerning.”
The National Association of Home Builders, which opposed the House measure, said in a Dec. 2 blog post that “the Senate bill represents a step in the right direction.” NAHB said, for example, that the Senate version, unlike the House’s, retains the cap on mortgage-interest deductions at $1 million.
In addition, NAHB said the Senate-passed measure “brings more parity in how pass-through businesses and ‘C-corporations’ are taxed, enabling them to maintain a level playing field with large corporations.”
AGC and other construction groups hoped Congress would use tax legislation to provide financial help for infrastructure programs, such as the federal-aid highway program. But that hasn’t happened. “This is a missed opportunity,” Sandherr said.
The Association of Equipment Manufacturers hailed the Senate’s action. AEM President Dennis Slater, in a statement, called the measure’s approval, “a monumental step toward realizing comprehensive tax reform for the first time in over a generation.”
He said the bill will improve U.S. equipment makers’ international competitiveness and foster new manufacturing jobs.
House GOP members push for PAB protection in tax reform bills
Original article on Construction Dive
Some House Republicans are pushing back against a tax reform bill that eliminates the option for nonprofits, as well as for state and local governments, to help finance their projects with tax-exempt private activity bonds (PABs), according to Reuters.
The House bill, which passed earlier this month, would also prevent states, cities and other bond issuers from trying to trim interest costs by refinancing bonds with tax-exempt issues when those bonds are more than 90 days from their call date. In a letter to House and GOP leaders signed by more than 20 congressional representatives, lawmakers said PABs used for both new projects and refinancing paid off in new jobs and allowed public entities to save billions in interest expenses.
The letter could come into play when the Senate and House meet up in conference committee to hammer out a compromise between their two bills. The Senate version which passed in the early-morning hours of Dec. 2, also eliminates PAB-based debt refinancing but retains their use for new projects.
Senate tax reform measure has improved substantially but lack of infrastructure investments, temporary nature of many tax cuts remains problematic
The chief executive officer of the Associated General Contractors of America, Stephen E. Sandherr, issued the following statement today (12/1/2017) in connection with the proposed Senate tax reform measure:
"The association has long advocated for comprehensive tax reform, especially considering that construction employers pay the highest effective rate of any industry at 30.3 percent. The Senate tax reform bill has been substantially improved over the course of the past few days and we support its passage.
"It is important to note that most construction firms are organized as pass-through entities, such as S corporations and partnerships that are taxed at personal rather than corporate tax rates. While the Senate proposal has wisely increased the pass-through deduction from 17.4 percent to 23 percent, the fact that the cut is temporary is concerning. We also remain disappointed that infrastructure was largely overlooked in the tax reform process. This is a missed opportunity.
"Assuming the tax reform legislation moves to a House-Senate conference committee, the association and its 26,000 member firms will continue to advocate for permanent changes to the tax code that benefit the majority of small and medium-sized construction firms that pay taxes as pass-through entities. And we will continue to push Congress and the administration to work together to swiftly enact measures to increase investments needed to improve our aging and over-burdened infrastructure."
