The "Jobs and Growth Tax Relief Reconciliation Act of 2003" that Congress passed this morning will stimulate demand for construction by returning $210 billion to individuals, businesses and states in the next 16 months, even greater total relief than President Bush had proposed over the short run. Moreover, the bill contains several provisions that will relieve tax burdens for construction firms, their owners and employees. The final bill contains no offsetting tax increases.
Associated General Contractors of America (AGC), the oldest and largest national construction industry trade association, supported tax relief from the time President Bush proposed it in January. AGC lobbied successfully on behalf of dividend and depreciation relief, a form of which was included in the final package. AGC also organized the Construction Coalition to Save American Jobs Overseas, which mobilized opposition to the Senate's repeal of tax code section 911, the partial tax exclusion of living expenses for taxpayers working abroad.
Following is a summary of provisions affecting construction. The Joint Committee on Taxation's estimate of budget effects for each provision is at http://waysandmeans.house.gov/media/pdf/taxdocs/hr2score.pdf. The text of the bill is at http://waysandmeans.house.gov/media/pdf/hr2/hr2conflegtext.pdf. The 328-page explanatory statement of the bill's managers, including description of all provisions in the House and Senate bills as well as the conference agreement, is at http://waysandmeans.house.gov/media/pdf/hr2/hr2confstateofmgrs.pdf.
Depreciation: All firms buying new equipment after May 5, 2003 and before January 1, 2005 can expense (immediately deduct) 50% of the cost. This is an increase from the 30% "bonus depreciation" enacted last year for equipment placed in service between September 11, 2001 and September 10, 2004. The first-year limit for business automobiles is raised from $4,600 to $7,650.
Small-business expensing. Businesses that buy less than $400,000 of equipment in 2003 can expense $100,000 of it before using the bonus depreciation amounts above. These limits are raised from $200,000 and $25,000 and indexed for inflation in 2004 and 2005. The old limits will be re-imposed in 2006 unless Congress acts again.
Dividends and capital gains. Corporate stockholders will benefit from a cut in the top rate on both dividends and capital gains to 15%, beginning January 1, 2003. Under the bill this provision will "sunset" at the end of 2008. Besides helping shareholders of companies currently organized as C corporations, this cut will enable some construction firms now taxed as S corporations or partnerships to choose the more flexible C corporation status once they no longer face tax rates of up to 38.6% on dividends.
Individual tax relief. The top rate is reduced from 38.6% to 35%, and the 27%, 30%, and 35% rates are reduced by two percentage points, retroactive to January 1, 2003. Previously, these cuts had not been scheduled to occur until 2006. Other individual tax reductions have been accelerated and the exemption from the alternative minimum tax is broadened temporarily. New withholding tables will be posted on the IRS website the day President Bush signs the bill, and an estimated 25 million taxpayers with children will receive rebate checks totaling $14 billion beginning in late July. The rate cuts will help owners of S corporations and partnerships, as well as employees of all types of construction companies. In addition, the higher cash flow for all taxpayers should provide some immediate economic stimulus.
State and local spending. State governments will receive $6 billion and local governments $4 billion that they can use for a wide variety of purposes, including highway, school or other construction. In addition, states will receive $10 billion for Medicaid, which will enable them to avoid deeper cuts in other spending. This should help some construction firms that have suffered from the sharp downturn in state and local infrastructure spending.
The bill makes no change in the current two-year carryback for net operating losses (NOLs). AGC had sought a continuation of the temporary five-year NOL carryback that expired at the end of 2002, which was part of the House bill. But conferees rejected both the longer carryback and the one-year carryback that was part of the President's original proposal.
Contact Kenneth D. Simonson, Chief Economist, Associated General Contractors of America, 333 John Carlyle Street, Suite 200, Alexandria, VA 22314
703-837-5313; fax 703-837-5406; e-mail firstname.lastname@example.org; website www.agc.org, or Heidi Blumenthal, Director, Congressional Relations, Tax and Fiscal Affairs, 202-547-8892, email@example.com, for further information.