Issues & AdvocacyFederal
Congress, White House Back Away from the “Cliff”
By Andrew Goldberg, Managing Director, Government Relations & Outreach
Congress approved legislation on New Year’s Day to address the “fiscal cliff,” avoiding the worst effects of the cliff but avoiding resolution on several key issues.
The fiscal cliff – a combination of tax increases and government spending cuts scheduled to kick in at the start of 2013 – threatened to send the economy back into recession and was the subject of furious, contentious negotiations between Democrats and Republicans for the last two months. The Senate approved the legislation at 2 a.m. on January 1 on an 89-8 vote; the House followed suit at 11 p.m. on a 257-167 vote. President Obama is expected to sign the bill shortly.
Most notably, the bill permanently extends the 2001 and 2003 tax cuts (also known as the “Bush tax cuts”) for individuals earning less than $400,000 per year and joint filers earning less than $450,000, while allowing the cuts for taxpayers over the thresholds to expire. Other tax-related provisions in the bill include:
• Alternative Minimum Tax (AMT). The bill permanently fixes the AMT, which was designed to ensure that higher income taxpayer pay at least some tax, to ensure that it does not ensnare middle income taxpayers.
• Capital gains/dividends. The bill locks in place permanently the current 15 percent rate on capital gains for those below the $400,000/$450,000 threshold, and raises it to 20 percent for those above.
• Estate taxes. The bill makes the 40% rate permanent, with an exemption for the first $5 million, which will be indexed to inflation.
• Business tax incentives. The bill extends until the end of 2013 a number of tax incentives, several of which benefit design and construction, and which the AIA has backed, including:
o The Research & Development tax credit
o 50-percent bonus depreciation for business improvements
o The Production Tax Credit for wind energy
o Qualified Zone Academy Bonds, which are used to finance school construction
o Incentives for qualified restaurant and retail buildings and improvements
o Credit for energy-efficient existing homes
o Credit for energy-efficient new homes
• Payroll tax relief. The bill did not extend the temporary 2-percent payroll tax cut, first enacted in 2011, which means that it expired on December 31.
The bill also extends additional unemployment benefits for another year. In addition, the bill delays the budget sequestration scheduled to take effect on January 2. According to an AIA analysis last fall, the sequestration would reduce federal spending on design and construction by more than $2 billion.
Even once the President signs the bill, policymakers are still facing more “cliffs” down the road. The Treasury Department has said that the country is about to hit the debt ceiling; Congress would need to vote to allow additional borrowing for the government. In addition, the budget sequestration is now scheduled to start in early March. March also is when budgets for nearly all federal agencies expire, meaning Congress will need to act to avoid a government shutdown. Each of these deadlines will likely lead to more contentious debates.
The AIA’s Take
AIA President Mickey Jacob, FAIA, issued a statement today on the fiscal cliff bill. Jacob said that, while “the agreement prevents a tax increase on millions of Americans and small businesses… [and] extends several business tax incentives that help create jobs and promote design and construction, . . . the element of uncertainty left by this bruising political battle will plague our economy for months and years to come.”
The AIA will continue working to educate policymakers about the impacts of tax and spending policies on the design and construction industry as debates over these issues continue in 2013.
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