Support Permanent Marginal, Capital Gains and Dividends Rate Reductions, and Repeal of the AMT
- For contractors, high income taxes— whether corporate or individual—reduce a company’s cash flow, thereby reducing the amount of money available to these businesses to expand, purchase equipment, hire more workers, bid on future projects, and reduce debt. AGC supports lowering the federal tax burden on individuals, construction companies, and other businesses as a means of promoting investment, business development, and business expansion. High marginal and effective tax rates inhibit entrepreneurial activity by penalizing successful businesses.
- At 31 percent, construction companies pay one of the highest effective rates of any industry, according to the US Treasury, Office of Tax Analysis.
- AGC believes that Congress should continue the dialogue of comprehensive tax reform at both the pass-through and corporate levels simultaneously. The individual and corporate codes are not mutually exclusive, and they must be reformed while discussing the reactionary affect a policy change would have on each other structure. Pass-through entities account for over 90 percent of businesses, employ about 55 percent of the private sector workforce and account for more than 60 percent of total business income.
- Like corporations, pass-through organizations face nearly the highest rate among industrialized countries on business income. Under the individual code, as modified by the American Taxpayer Relief Act of 2012 (ATRA) (Pub.L. 112–240), pass-through entities face a top marginal rate of 39.6 percent, even higher than the anti-competitive 35 percent rate faced by C-corporations, and as high as 50 percent when factoring state taxes.
- ATRA permanently extended the 2003 tax provisions related to rates on long-term capital gains and qualified dividends; while modifying the rate for those in the top tax bracket. ATRA retains the 15 percent tax rates on long-term capital gains and qualified dividends for taxpayers with incomes below $400,000, indexed for inflation in future years. Those with incomes above the applicable income thresholds will see both rates rise to 20 percent.
Tax Reform Should Be Pursued Comprehensively
- Addressing both the individual and corporate tax rates simultaneously ensures businesses of all sizes maintain a fair and competitive playing field in the construction industry.
Tax Reform Should Not Pick Winners and Losers
- AGC believes that revamping the ability to recover capital costs in the current system is vital for construction companies. Accelerated and bonus depreciation allow businesses to write off expenditures to incentivize capital investments, as well as new and used equipment purchases. Similarly, AGC supports the retention of the Domestic Production Activities Deduction (Section 199) for the construction industry.
Make the Marginal Tax Rates Permanent
- ATRA makes permanent the five marginal tax rates; however, it raises the top marginal rate to 39.6 percent for individuals with income exceeding $400,000. Coupled with the tax increases enacted in the Obama healthcare overhaul; top earners could see their federal taxes rise to as much as 44.6 percent. These taxes will impact the roughly 75 percent of AGC members organized as S corporations, sole proprietorships, or partnerships that pay taxes at the individual rate.
Tax Uncertainty Hinders Long-Term Investment Strategies
- Because of the temporary nature of certain tax provisions in law that are extended by Congress each year (known as Tax Extenders), construction companies face uncertainty about the future taxation of their business, and this will hinder long-term investment strategies.
Permanency for Capital Gains and Dividends Tax Rates
- AGC appreciates the effort that Congress has made to make permanent the capital gains and dividends rates. Reasonable, permanent reform provides the necessary continuity that AGC contractors have been demanding from Congress.
Elimination of the Alternative Minimum Tax
Congress instituted the alternative minimum tax (AMT) with the Tax Reform Act of 1986. The law imposes a minimum tax on an individual or on a corporation to the extent the taxpayer's minimum tax liability exceeds its regular tax liability. While ATRA increased and made permanent the 2012 AMT exemption amounts for individuals; computation of the AMT continues to be administratively complex and inhibits the formation of capital and complicates equipment and property acquisition decisions.
Eliminate the Health Care Reform Investment Tax
- AGC continues to oppose the 3.8 percent tax included in the Affordable Care Act that applies to net investment income for individuals earning more than $200,000 and couples earning more than $250,000. With the surtax, individuals with income greater than $400,000 ($450,000 married couples) will pay a top dividends and capital gains tax rate of 23.8 percent.
Support Permanent Reduction of Federal Estate Taxes
- Contractors continue to tie up resources in compliance that could be used to create jobs and grow the economy. While permanent full repeal of this tax is the best option on the table to ensure construction businesses are able to stay in business after the death of an owner, reasonable, permanent reform also provides the necessary continuity that AGC contractors are demanding.
- The American Taxpayer Relief Act of 2012 allows family-owned businesses within the AGC membership to focus on growth and business planning; which would grow our economy, create new jobs, and strengthen businesses. For this reason, AGC is gratified for the reasonable, permanent reform provided under ATRA with a 40 percent tax rate for estates above the exemption value of $5 million indexed for inflation ($5.43 million for 2015).
- Depreciation Policy (§179, Bonus, 15-year leasehold)
Expand and make permanent bonus depreciation and enhanced capital expenditures write-offs to incentivize capital investments and new and used equipment purchases (Section 179).
Shortened Cost Recovery Period for Leasehold Improvements – Make 15-year shortened cost recovery permanent to provide an important incentive for capital improvements to these properties.
Preserve Section 199 deduction for the construction industry.
- Research and Development Tax Credit
Extend the credit for construction companies that have an increasing responsibility to innovate products and processes in order to secure successful bids on projects.
- Work Opportunity Tax Credit
Extend and expand provisions that aide employers in hiring veterans, individuals receiving disability rehabilitation, and residents of empowerment zones or rural renewal counties.
- Like-kind Exchanges
Section 1031 – Maintain current deferral of taxable income on like-kind exchanges of real property such as heavy construction equipment and truck fleets.
- Carried Interest
Reject efforts to increase tax that would undercut the economic incentive to build projects and drive away investments from the commercial real estate sector. Most efforts identified have cast a broad net and will likely have a significant impact on equity transfer in closely held construction companies.
- Built-In Gains Recognition
Support the reduction in S-corporation recognition period for built-in gains (BIG) tax. The Tax Increase Prevention Act of 2014 retroactively extended through 2014 the temporary five-year recognition period for built-in gains. The BIG recognition period reverts to 10 years in 2015.
- Net Operating Losses
Create permanent tax policy on NOL Carryback that allows a 5-year carryback and a 15-year carryforward for all businesses to allow cash-strapped businesses to convert future tax benefits into cash today.
- Tax Exempt Financing
Preserve the preferable tax treatment of debt used to finance public infrastructure.
- Commercial Building Energy Efficiency Tax Deduction
Increase deduction and convert it into a tax credit to provide a significant financial incentive for all property owners to improve the energy efficiency of commercial buildings and ensure that 179D does not get charged to the contractor doing the work
- New Markets Tax Credit
Extend the NMTC program under Section 45D which was established in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities. Many of the projects funded through the program involve major, mixed-use urban redevelopment.
- Production Tax Credits
Extend alternative energy tax production tax credits (e.g. Wind PTC).