Treasury Department: Construction industry shoulders top tax rate

Source: Associated Builders & Contractors, Washington, D.C.

A U.S. Department of the Treasury analysis confirms that a typical construction company faces an average effective federal tax burden of 30.3 percent against the 23.3 percent average for all U.S. businesses. The industry likewise pays the highest effective tax rate—the percent of income businesses actually pay in taxes—of any sector of the economy.

The analysis stems from the President’s Framework for Business Tax Reform, updated by the Obama Treasury Department from an initial 2012 version to include a proposal to stop corporate inversions and lower domestic corporate rate from 35 percent to 28 percent. The latter is of limited benefit to construction, where the overwhelming majority of businesses are organized as pass-through entities; their income is taxed at the individual level and would be left behind under such a plan.

Associated Builders & Contractors and its Tax Advisory Group (TAG) have long supported efforts to lower effective tax rates for construction businesses and bring greater parity for members by fighting to ensure that pass-through entities are included in tax reform discussions.

In an op-ed for the Washington, D.C.-centric The Hill, ABC Immediate Past Chair Pamela Volm calls on stakeholders to create a tax environment that encourages growth for both big and small businesses: “While there seems to be a general consensus that our tax system needs fundamental reform, some in Washington, including President Obama, have proposed reforms chiefly concerned with lowering the corporate rate—despite the fact that so-called C-corps make up just five percent of all business entities and account for less than half of the private sector workforce. Slashing the corporate rate does nothing to provide relief for the millions of small businesses that file their taxes individually; the same small businesses that create two out of every three jobs in the United States, according to the Small Business Administration.”

In addition to high effective rates, ABC notes, many members—and small businesses in general—struggle with the ambiguity created by constantly changing tax policies. In testimony before a U.S. House of Representatives subcommittee in December, ABC TAG member Rich Shavell told Congress “the single biggest challenge facing small business today is widespread uncertainty—[in] economic prospects, regulatory environment and tax policy.”