Deficit reduction is now on the front burner in Washington, but at this early stage, there are more questions than answers about how the spending cut and tax provisions will affect construction programs.
The outline President Obama unveiled on April 13 now vies with a Republican-backed plan introduced earlier this month by House Budget Committee Chairman Paul Ryan (R-Wisc.).
Both aim to trim the deficit by about $4 trillion-- over the next 10 years (Ryan) or 12 years (Obama).
Construction officials are surely zeroing in on provisions in both plans that would make big reductions in domestic discretionary spending. That category accounts for only about 12% of the overall federal budget, but it includes nearly all federal construction funding.
Obama says he’s aiming for $750 billion in cuts in overall domestic, non-defense spending over the next dozen years.
Ryan’s budget resolution includes a cumulative $1.8 billion in cuts to domestic “non-security" spending over the 11-year, 2012-2021 span.
In his speech unveiling his deficit-cutting proposal, Obama drew sharp distinctions between his blueprint and the Republicans’ plan, and cited infrastructure spending as one area where he differs with the GOP.
Obama said that while he wants to make cuts in the broad domestic spending category, “I will not sacrifice the core investments that we need to grow and create jobs,” and singled out “clean energy technology,” as well as “new roads and airports” among those core areas.
But he didn't provide any specific figures for energy, transportation or any other programs.
By comparison, Obama said, the Ryan plan would include a 70% reduction in clean energy funding and a 30% cutback in transportation spending.
There also are wide differences between the two plans' tax provisions.
Ryan proposes to cut corporate and individual tax rates and do away with the 2010 health-care law. Repealing that statute would eliminate about $800 billion in taxes, he says.
Obama would gain about $1 trillion worth of deficit reduction from tax increases and other changes. A big revenue-raiser would be his proposal not to extend the 2001 and 2003 tax cuts for upper-income Americans.
In addition, the president is proposing to limit the amount of itemized deductions for the top 2% of taxpayers in terms of income, a move that he estimates would raise $320 billion over 10 years.
Construction companies no doubt would welcome a lower corporate tax rate, unless those benefits were offset by other "loophole-closing" provisions.
Small design and construction firms organized as partnerships or S Corporations pay taxes at individual, not corporate, rates, and thus are likely to be unhappy about Obama's plan to bar further extensions of the 2001 and 2003 tax cuts and to limit deductions for top earners.
The deficit-reduction debate is just beginning in earnest and if there is a deal, it won't come for months.
But if the two sides eventually can close the gulf that divides them, a final agreement that makes a major dent in the federal deficit should boost the overall economy. That should help construction. But no deal--or resulting near-term boost for construction-- is on the horizon. At least, not yet.
