Momentum is building for the first overhaul of the nation’s convoluted tax code since the Tax Reform Act of 1986. With Republicans in control of Congress and the Trump administration eager to sign legislation providing tax relief for Americans, we’re approaching a unique moment of time where the impossible may be possible.
Signatory contractors — comprising thousands of businesses providing middle-class salaries, health-care benefits and pensions for over one million employees across the country — understand what some of the major components should entail and how infrastructure investment through smart tax policy can grow our economy for decades.
Construction firms are in a unique position to understand the real-world effects of tax reform for businesses, their employees and the families that depend on the blue-collar jobs that built America’s middle class.
The tax code is a reflection of our country’s values. Construction firms value hard work, quality, innovation and support for our employees and their families, which Congress can incentivize through tax reform.
While lowering the corporate tax rate is critical to the success of the tax reform effort, there are many tax incentives in the code that must be maintained to ensure continued success of family-owned businesses. The current tax rate of 35 percent must be reduced to allow U.S. firms to compete with foreign competitors.
The code should also promote voluntary and mandatory investment in infrastructure. The country currently needs about $4 trillion in infrastructure investment, and President Trump has committed to $1 trillion over 10 years, though details remain sparse.
Therefore, it seems prudent to maintain and expand tax provisions that incentivize infrastructure projects from coast to coast.
Repatriation of overseas earnings could return $2 trillion in capital currently locked in overseas accounts, and a portion of repatriated funds should be dedicated to infrastructure needs, either by mandate or through favorable tax treatment.
This capital could launch a huge wave of financing for buildings and infrastructure. With less direct spending available from the U.S. Treasury for investing in roads, buildings, infrastructure, power systems and the like, cities, counties and states are providing the majority of infrastructure investments through the issuance of hundreds of billions of dollars in tax-exempt municipal bonds.
Maintaining tax provisions that support employees and middle-class families should also be a key component of true tax reform. Historically, health insurance benefits have not been treated as income for employees, allowing companies to provide lower-cost and more comprehensive health coverage for employees without increasing their tax liability.
The construction industry has consistently provided affordable health insurance to our employees, and millions of Americans depend on the health coverage signatory contractors provide for acute and chronic illnesses.
We understand that tax reform is not free, however, and congressional leadership has indicated it intends tax reform to be revenue neutral. To do this, we must identify “pay-fors” to fund vital tax provisions.
One way to ensure continued infrastructure investment is to raise the federal gasoline excise tax, which has been stubbornly stuck at 18.4 cents per gallon since 1993. Since the gas tax was last adjusted, inflation has grown by 64.6 percent.
Had the gas tax increased by the same amount, in 2014, the Treasury would have collected an additional $16 billion in gas taxes; diesel and specialty fuels similarly indexed would put that number even higher.
At a time of historically low gasoline prices, consumers can absorb a modest increase in the gasoline tax while collectively contributing to necessary infrastructure investments.
Another way to raise revenue without imposing new or additional taxes is to increase IRS enforcement of legitimate taxes owed and not paid for key programs, such as employee misclassification.
Employee misclassification occurs when an employer improperly classifies an employee as an independent contractor to gain a competitive advantage at the expense of responsible, lawful companies and depriving employees of benefits they deserve.
It is estimated that between $3-4 billion in federal income and employment tax revenue is lost each year due to worker misclassification.
Tax reform is unquestionably a difficult endeavor and can wreak havoc on the construction, real estate and development sectors of the economy if poorly crafted.
Construction Employers of America — our 15,000 small, medium and larger business members and our 1.4 million employees — can be a model of how to support both businesses and employees while reflecting our common values through tax reform policies that grow the economy and address the infrastructure crisis we face across the nation.
Jack Jacobson is the official spokesperson for Construction Employers of America, a coalition of seven national construction specialty contracting associations, working to raise awareness among policymakers, opinion leaders and the general public about the value of American construction.