With Senator Machin agreeing to a $700B+ bill, AGC’s got a first take on what matters for the construction industry.
On July 28, Senators Schumer (D-N.Y.) and Manchin (D-W.Va. ) announced an agreement on a broad tax/climate/energy/healthcare package that would, amongst other things, spend $369 billion on renewable energy projects and electric vehicles, authorize the government to set prescription drug prices for Medicare, create a 15 percent “corporate minimum tax” for large C-Corporations, and massively increase the budget of the Internal Revenue Service (IRS). Combined, this new so-called Inflation Reduction Act of 2022 would authorize $468 billion in new spending against $773 in new taxes and spending cuts, for a net $305 billion in deficit reduction over the next 10 years.
While many Democrats initially praised this agreement between Schumer and Manchin, other Democrats not party to the agreement (notably, Senator Sinema of Arizona) have yet to sign-off on the deal. Additionally, the legislation has yet to be fully reviewed by the Senate Parliamentarian to ensure it complies with the complicated budget rules. In other words, the legislation may face significant changes before being voted on in the Senate next week. For now, a four page summary of the deal from Senate Democrats is available here.
While AGC is still reviewing the 725 page legislation, it’s important to note what AGC was able to successfully exclude from the agreement. For example, the agreement:
- Does NOT include any PRO Act provisions.
- Does NOT raise OSHA fines up to $700,000.
- Does NOT increase the capital gains tax rate to as high as 43.4%.
- Does NOT increase individual tax rate(s) to as high as 39.6%.
- Preserves the Section 199A deduction for qualified business income for pass-through business owners.
- Does NOT apply the 3.8 percent Net Investment Income Tax to the owners of pass-through businesses that actively participate in the business (the so-called “small business surtax”).
- Preserves “stepped-up basis” to ensure that construction firms do not face a “double death tax” upon the passing of one or more of the owners.
- Does NOT extend or expand the so-called “excess loss limitation” beyond 2026, which would prevent pass-through businesses from fully deducting their losses during economic downturns.
While it is possible that one or more of these provisions could re-emerge during continued negotiations, the Schumer-Manchin agreement takes into account many of the concerns AGC expressed to Congressional tax writers about the proposed tax increases in earlier versions of this legislation (then called the Build Back Better Act). However, while AGC made significant progress in advocating against tax increases in this proposal, there are other deeply concerning provisions in the legislation. This includes:
- Attaching prevailing wage and apprenticeship requirements to many of the renewable energy tax incentives, such as the construction of renewable energy facilities, which is traditionally private work.
- Significantly expanding the tax incentives for electric vehicles without creating a mechanism for them to pay into the Highway Trust Fund.
- Providing funding to the EPA to federally standardize environmental product declarations, and identify and label low-embodied carbon construction materials, similar the California “buy clean” program.
The Senate is expected to vote on this legislation (subject to additional changes) next week. While the House of Representatives is currently scheduled to break for their August recess at the end of this week, Speaker Pelosi has indicated that she would call the House back into session if the Senate successfully passes the bill. AGC will continue to monitor any changes in the legislation as it moves forward and provide updates as needed.
If you have questions, please contact Matthew Turkstra at [email protected], or (202) 547-4733.
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