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The Coming Tax Hikes No One Wants to Talk About

When the clock strikes 12 midnight, January 1, a big change in the taxes that companies and families pay takes place. No, it’s not a surprise deal between Congress and the White House on the federal budget. It’s not even something that’s been cause for much Congressional gridlock. Quietly and without fanfare, 55 federal tax incentives used by small business and individual taxpayers are scheduled to go up in a puff of smoke.

The expiring tax breaks range from a tax credit for investing in research and development, to bonus-depreciation rules that allow companies to write off half their equipment purchases in a single year, to a new home energy efficiency credit that expired last year.

"I don't know that there's a real champion for [these measures] right now" in Congress, Hank Gutman, director of accounting firm KPMG LLP's Tax Governance Institute and a former chief of staff for Congress's Joint Committee on Taxation, recently told the Wall Street Journal. "In terms of the bigger issues that the country's facing, they are not high on anybody's radar now, even though they are of significance for the business community."

Of most significance to the design and construction industry is the expiration of a tax break enacted in 2005 for energy efficient commercial buildings within the Energy Policy Act. This provision allows for building owners to claim a tax deduction of $1.80 per sq. ft. of building area to install systems that reduce the total energy and power costs by 50 percent or more when compared with a reference building.

The deduction applies to nearly all commercial, high-rise multifamily residential, health care, institutional, public, and educational facilities and allows public building owners to allocate the deduction to the designer of energy efficient property. This, in turn, permits the designer to take advantage of all the resources necessary to design the most energy efficient property possible, while giving the building owner a tool for financing.

Since its enactment in 2005, this provision in the law, known as 179D, has helped leverage billions of dollars of energy efficient improvements.

At a time when the design and construction industry continues to lack necessary financing, providing incentives for energy-efficient design and construction remains an effective strategy to encourage building owners to undertake renovations, leading to job creation across the industry. And as energy-efficient buildings cost less to operate, use less energy, reduce the emission of greenhouse gases, improve comfort, and protect the energy security of our nation, enlarging the deduction will promote job growth while also supporting key national ideals.

It is true that Congress is considering broader reforms to the tax code, changes that might lead to the end of some incentives in exchange for lower overall tax rates. But the bottom line is that incentives like 179D have made a difference to a great many small design and construction firms. If Congress does nothing between now and the end of December, the costs of doing business will go up, plain and simple.

My professional association, the American Institute of Architects, was instrumental in creating of this innovative use of tax policy. We hope to be instrumental in convincing Congress to keep it. We hope you will join us in this effort.

Joe Smith is President of AIA Georgia


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