Tax Reform Considered in Senate Finance Committee, Advances in House

Tell Your Representative/Senators to Provide Tax Relief for Construction
Earlier today the House passed its tax reform legislation, H.R. 1, the Tax Cuts and Jobs Act, by a vote of 227-205.  While there are a number of positives in the bill, such as repealing the estate tax, repealing the Alternative Minimum Tax, (AMT), and increasing the exemption from percentage of completion accounting to $25 million, AGC continues to have concerns about the taxation of pass-throughs and the lack of infrastructure financing in the bill.  AGC is continuing to communicate with the members of the House and Senate to make improvements in the legislation throughout the legislative process and urges you to contact your members of Congress and urge them to treat S-corps fairly as compared to C-corps and maintain incentives for public and private construction in tax reform.
On Nov. 9, the Senate Finance Committee released the Senate’s version of comprehensive tax reform, and, since then, its legislation has been significantly amended.  The Senate tax reform plan differs from the House’s in a number of meaningful ways, and AGC has put together a chart comparing the two bills.
For the construction industry, the biggest change is how the Senate bill approaches the taxation of pass-through entities (S-Corporations, LLC’s, Partnerships and Sole Proprietorships).  While the House bill creates a separate pass-through business tax rate, and sets up enforcement rules to curb abuses, the Senate bill would instead allow for a 17.4 percent deduction of net business income against the individual tax rates with a number of limitations.  The top effective tax rates for pass-throughs under both bills, however, would create a wide gap between the tax rate on C-Corporations and pass-throughs (roughly 35 percent and 32 percent in the House and Senate bills, versus 20 percent for C-Corporations).
Another important difference is that, after the Senate amended its legislation on Nov. 14, all of the individual tax provisions, including the rate relief for pass-through businesses, are now scheduled to expire after 2025.  Unfortunately, this change was made to accommodate the Senate budget rules, which do not allow for an increase in the deficit after 10 years.
Regarding infrastructure, the Senate bill did not entirely repeal the tax exemption for Private Activity Bonds (PABs) as the House bill did, and scaled back the Historic Tax Credit, rather than repealing it entirely as House bill did.  These are improvements compared to the House bill.
For more information, contact Matthew Turkstra at [email protected] or (202) 547-4733.

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