The new American Jobs Plan will create a windfall of work, not a big burden in taxes.
The Biden $2.3 trillion infrastructure plan will provide a large wave of cash to fund public projects that should provide significant upside for the construction industry according to a certified public accountant who leads Ernst & Young’s global construction and engineering practice.
Erin Roberts is a consultant and strategist who specializes in advising construction companies and industry groups including the AICPA Construction Conference and the American Council of Engineering Companies. Roberts says that since the majority of construction companies in the US are organized as “pass-through” entities they would not be subject to corporate taxes. Since the multi-trillion dollar infrastructure plan is to be paid by increased corporate taxes, the way things are set up for the plan, it will likely provide a great cash windfall in increased revenue to the construction industry for years into the future.
According to the U.S. Census Bureau, just 16% of nonresidential construction businesses in the U.S. are registered as C corporations, and thus subject to corporate tax rates. The lion’s share of the remaining 84% is comprised of S corporations, sole proprietorships and partnerships that are treated as pass-through entities, where their owners pay taxes on their profits at the individual rate. *
The corporate tax rate is proposed to increase from 21% to 28% but while most construction companies will avoid increased taxes, some owners might not. Part of the plan may be paid by increasing taxes on individuals who make more than $400,000/ year.
For those companies that are listed as corporations, the plan seems to hit them at the worst time. The Associated Buiders and Contractors (ABC) decried the tax on their corporate members. President and CEO of ABC, Michael Bellaman issued a statement that included the following:
“Unfortunately, much of the Biden plan ignores ABC’s infrastructure policy recommendations, while proposing tax increases on job-creating construction firms that are still recovering from the effects of the COVID-19 pandemic.”**
While many of the details for the infrastructure plan still must be hammered out and negotiated with Congress, there are likely to be changes by the time the bill is passed. The individual tax rate change wasn’t a core part of the strategy and compromising might be a way to get owners on board.
Gains Greater Than Losses
In spite of whatever increased tax burden may or may not have to be shouldered by the industry, Erin Roberts believes the gains will greatly outweigh the extra burden.
“Based on our analysis, for traditional infrastructure categories such as transit and roads and bridges, the American Jobs Plan looks to propose a nearly 30% increase in annual public spending over historical levels,” Roberts said. “So if you’re in the road and bridge market, that’s coming to you. I think that’s where it can be very accretive.”
Even with the possibility of minor tax increases, it appears the industry should be optimistic for a new period of significant growth. The scale of the infrastructure plan is so vast that contractors in public and private sectors should be considering how they will grow quickly and intelligently over the eight year time span that the plan is intended to cover.