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Taxes Weigh Heavily on Construction

Wednesday, April 20, 2016

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While tax expenditures vary by industry, construction appears to bear the highest business tax burden, according to a recent report from the White House and the Department of the Treasury.

In The President’s Framework for Business Tax Reform: An Update, released in April, federal officials point out that the overall average federal tax rate for U.S. corporations was 23 percent—ranging from, on the low end, a 14.5 percent average tax rate for utilities to a 30.3 percent average tax rate for construction.

This data has spurred the Associated Builders and Contractors (ABC) to respond by urging lawmakers to pass tax reform that would encourage economic growth by lowering rates for both corporate and pass-through businesses, the association announced Friday (April 15).

“Tax Day is a painful reminder to construction companies that they carry a larger tax burden than any other industry,” said 2016 ABC National Chair David Chapin, president of Willmar Electric Service, Lincoln, NE.

Bay Bridge construction
© / DayAndNightImages

The President’s Framework for Business Tax Reform: An Update, released in April, outilnes the need to reform the business tax system, especialy as it affects industries like construction.

“While construction has rebounded considerably from the troughs of the recession, our industry is largely reliant on the health of the overall economy, and high tax rates continue to act as a check on growth and investment,” he added.

“Congress must enact comprehensive, meaningful tax reform that will encourage economic growth by lowering effective rates for all businesses regardless of size, sector or tax structure.”

Impeding Innovation, Slowing Growth

The new publication updates a 2012 report from the federal offices that outlined the need for reform of the business tax system and presented the five elements of reform the president envisioned:

  • Eliminating loopholes and subsidies to broaden the base and lower the rate;
  • Strengthening American manufacturing and innovation;
  • Strengthening the international tax system;
  • Simplifying and cutting taxes for America’s small businesses; and
  • Restoring fiscal responsibility without adding to the deficit.

The Update reviews the need for reform of the U.S. business tax system and the key elements of the president’s Framework, and also details the specific proposals the president has put forward, including a comprehensive approach to reforming the international tax system.

Among the issues specifically affecting the construction industry is that paying higher taxes lessens the funding available to tackle needed projects. Specifically, the current tax system “distorts investment decisions,” the report said.

Tax reform table--tax by industry

The overall average federal tax rate for U.S. corporations is 23 percent—ranging from, on the low end, a 14.5 percent average tax rate for utilities to a 30.3 percent average tax rate for construction, according to a new report from The White House and Treasury Department.

Through the inefficient allocation of capital, this system is lowering living standards now and could impede technological innovation as well, it explained. Moreover, the distortions may slow economic growth over the long term.

At this time last year, ABC’s then-chair Pamela Volm told political website The Hill that large international corporations effectively make use of “complicated tax dodges” that lower their payments—sometimes even to zero—while small firms in construction and other industries have nowhere to go.

“Construction is reliant on an overall healthy economy and the economic drag of a tax code that continues to pick winners and losers has a compound effect on our industry,” she said.

“Less economic growth means fewer companies starting and expanding and also means lower overall tax revenue, which translates into fewer offices, plants, hospitals and schools that need to be built,” she explained.

A level playing field when it comes to taxes—one that relieves the burden on businesses of all sizes—Volm suggested, will lead to more opportunities for construction firms to grow their businesses.

“Growing my business means more money in the local economy, more opportunities for me to hire more employees and more money throughout the construction supply chain, which includes other mostly small businesses such as subcontractors and suppliers,” she explained.  

Investing in Infrastructure

One section of the tax reform Update specifically calls out the use of revenues from the transition to a new international tax system to invest in U.S. infrastructure.

“Maintaining a well-functioning system of roads, airports, railways, and waterways is crucial to the American economy,” officials wrote. In addition to enabling the transport of products for businesses and maintaining a network for commuting to various destinations, infrastructure investment creates jobs in construction and related industries, they added.

highway bridge construction
© / ewg3D

One section of the tax reform Update specifically calls out the use of revenues from the transition to a new international tax system to invest in U.S. infrastructure.

However, the report noted, approximately two-thirds of America’s major roads are rated to be in “less than good condition,” and one-quarter of the nation’s bridges need rehabilitation, replacement, or significant maintenance and repair to remain in service or do not meet current design standards and traffic needs.

With that in mind, the president’s plan proposes using the transition revenue, as well as revenue from a new oil fee, to transform our transportation system using targeted federal investments to stimulate state and local investments in smarter, cleaner and regional transportation systems and to reach other goals of his 21st Century Clean Transportation Plan.

The plan calls for a one-time toll charge of 14 percent on the more than $2 trillion of untaxed foreign earnings that U.S. companies have accumulated overseas, raising nearly $300 billion, the report explained.

“Because these revenues are one-time in nature, they should be matched with one-time costs,” it said. “Temporary revenues do not justify long-term costs, such as a reduction in the corporate tax rate, which would ultimately increase deficits and debt.”

Such an investment would expand transportation options for communities around the country and increase the resilience of the nation’s infrastructure, without adding to the deficit, officials stated.


Tagged categories: Associated Builders and Contractors Inc. (ABC); Business matters; Construction; Funding; Infrastructure; North America; Program/Project Management; Rehabilitation/Repair; Renovation; Taxes; Transportation

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