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LOOMING TAX INCREASES UNSETTLE CONSTRUCTION INDUSTRY

June 3, 2008

Washington, D.C. — Without Congressional action, and because of arcane budgetary rules, tax cuts enacted in 2001 and 2003 will expire in 2011. The elimination of those tax cuts will have a significant impact on the construction industry in particular and the economy in general, according to the nation's largest construction trade association, the Associated General Contractors of America (AGC).

"In 2001 and 2003, Congress made the right decision to join with the President and lower the tax burden on our nation's businesses to stop a recession and keep the country moving forward," said Stephen E. Sandherr, chief executive officer of AGC. "With a precarious economy, it is time for Congress make the cuts permanent."

Tax rates will go up across the board for all Americans, including the pass-through entities, such as partnerships and "S" corporations, which make up most businesses in the construction industry. The death tax jumps to a rate of 55% in 2011, while the impending enactment of 3% withholding on public works contracts will devastate construction businesses, which on average make 2.4% per contract.

The marginal tax increases raise taxes up to 5% in 2011 unless Congress acts and impact more than 60% of construction companies that file their business taxes at the individual level. The sharp rise in the death tax – from zero in 2010 to 55% in 2011 – will take the life out of many small and medium sized companies. Owners will be forced to take their focus off their businesses and instead focus on ways to save their companies for future generations and their current work force.

The new 3% withholding law, set to be imposed in 2011, requires most government entities on every level to take 3% from the cost of the contract and send it to the IRS, rather than pay the company performing on a public works contract.

Construction companies will be especially hard hit by this because their profit margin is less than the withholding – 2.4% on average. This will force many small businesses out of the government market, increase the costs of performing public works contracts, and increase the costs to the taxpayer.

"Congress should permanently implement the Bush tax cuts and repeal the hazardous 3% withholding before it's too late," added Sandherr.

The Associated General Contractors of America (AGC) is the largest and oldest national construction trade association in the United States. AGC represents 33,000 firms, including 7,500 of America's leading general contractors and 12,500 specialty–contracting firms. More than 13,000 service providers and suppliers are associated with AGC through a nationwide network of chapters. Visit the AGC Web site at www.agc.org. AGC members are "Building Your Quality of Life."

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