As House and Senate legislators prepare to negotiate a compromise tax-cut bill, some construction groups prefer the version the Senate passed on Dec. 2 over the House-approved measure, particularly because of better provisions for partnerships and other pass-through entities. But the American Institute of Architects strongly criticized both chambers’ bills, partly because architects and engineers are excluded from the pass-through breaks.
Senate passage of a $1.4-trillion-plus tax-cut package marked a major step forward for the legislation, the top Capitol Hill priority for GOP lawmakers and the Trump administration.
The next step is a House-Senate conference committee to work out differences between the bills. House Republicans named their negotiators on Dec. 4.
Senate Majority Leader Mitch McConnell (R-Ky.) announced the Senate GOP negotiators on Dec. 6. Minority Leader Chuck Schumer (D-N.Y.) named the Senate Democrats' team the following day.
Steve Hall, American Council of Engineering Companies vice president for government affairs, says, "I think there’s an assumption that the Senate bill will be the basis for the conference report. And so it’s really a question of what changes will the House be able to assert through this process, knowing that senators are going to be making the case to House leaders that they just barely got their bill [approved] and they're not going to be able to give away much."
A central issue for design and construction groups is how the bills treat pass-throughs, which account for a majority of the firms in the industry. To help push the Senate bill to approval, Finance Committee Chairman Orrin Hatch (R-Utah) and other GOP leaders boosted a deduction for pass-throughs to 23% from an earlier version’s 17.4%.
But like other Senate bill provisions for individual taxes, the pass-through deduction would expire on Dec. 31, 2025. The bill’s cut in the corporate rate, which applies to C-corporations, doesn’t kick in for a year but then becomes permanent.
Stephen Sandherr, Associated General Contractors of America CEO, in a Dec. 1 statement noted that the Senate bill was “substantially improved” in the days leading up to the final vote, citing the larger deduction for pass-throughs. But he added, “The fact that the cut is temporary is concerning.” AGC also is disappointed that, to pay for other tax cuts, the Senate reinstated the alternative minimum tax for corporations and individuals. That action “is something we would like to see fixed by the conference committee,” says AGC spokesman Brian Turmail.
AIA is pushing for changes in the final version, too. Thomas Vonier, AIA president, noted that the House and Senate measures specifically exclude architects from the pass-through benefits. He observed, “There is no public-policy reason to do this.”
Further, AIA is unhappy that the House bill eliminates the credit for historic buildings; the Senate retains but weakens the credit, AIA says. Vonier said that if either bill is approved, “Congress would be making a terrible mistake.”
Hall says ACEC is making the case with lawmakers to make engineering and architectural firms eligible for the bill's pass-through benefits.
That argument also points to House and Senate provisions to eliminate a current 9% deduction that engineering and architectural firms can take for their work on domestic projects.
Hall says many firms use that so-called Section 199 deduction, which dates to the George W. Bush administration. And if the break is eliminated, "They're looking at a higher tax burden [under the new bills] than current law."
The National Association of Home Builders, which opposed the House bill, calls the Senate’s “a step in the right direction.” NAHB said the Senate measure “brings more parity in how pass-through businesses and C-corporations are taxed, enabling them to maintain a level playing field with large corporations.”
NAHB reported on Dec. 6 that it had held "productive" meetings on the tax bill with House Ways and Means Committee Chairman Kevin Brady (R-Texas) and other key lawmakers.
The association said the legislators expressed support for retaining private-activity bonds, which play an important role in financing affordable rental housing. The House tax bill would eliminate the bonds, which also help finance infrastructure projects. The Senate version retains the bonds.
NAHB also said a proposal is "circulating" that would allow individuals to deduct $10,000 a year for state and local property or income taxes. It also would apply to pass-throughs.The House and Senate versions would limit the deduction to property taxes. The group also said the proposal may include a higher deduction level.
Story updated on Dec. 9, with Senate conferees' appointments, additional industry comments and information.
