In December 2010, President Obama and Congress negotiated an $858 billion compromise tax bill that temporarily extended lower tax rates and numerous expiring tax credits of importance to businesses. Although the tax bill's enactment is highly significant, because of its limited duration, it is only a stop-gap measure. In fact, the battle over taxes will continue this year and in the future with significant implications for roofing contractors and other employers.
A temporary extension
In recent years, NRCA steadfastly has supported permanent extension of lower, pro-growth tax rates enacted in 2001 and 2003 as vital to restoring strong economic growth in the construction industry.
Although the bipartisan tax bill fell short of permanently extending low tax rates, NRCA supported it as a short-term compromise necessary to provide stability and certainty for businesses during the next two years. With Congress failing to take action until only days before the looming expiration of the tax rates, a temporary extension was the only feasible political solution to avert massive tax increases scheduled to take effect Jan. 1, 2011, for all taxpayers.
Additionally, NRCA supports the estate tax relief contained in the tax bill, which provides a 35 percent rate with a $5 million-per-person exemption. This will provide tax relief and greater certainty for many small and mid-sized family-owned businesses. Without this amendment, the estate tax would have been permanently set at 55 percent with only a $1 million exemption in 2011 and future years.
The compromise tax legislation was a victory for pro-business tax policies in the short-term, but it extends key tax provisions for only one or two years. As a result, most of the U.S. tax code is temporary. Many business leaders and economists believe the temporary nature of the tax code complicates business planning and discourages hiring and investment.
To mitigate uncertainty surrounding this issue, some lawmakers have called for fundamental tax reform to re-establish permanency to the tax code with the goal of facilitating stronger economic growth.
Additionally, in December 2010, a bipartisan presidential commission formed to develop policies aimed at reversing the spiraling federal debt recommended Congress pass legislation to overhaul the tax code completely by lowering tax rates for individuals and corporations while eliminating many deductions and credits.
President Obama and key members of Congress have indicated they will attempt to tackle fundamental tax reform in 2011, developing tax policies that encourage investment and greater economic growth while also raising sufficient revenue needed to reduce growing budget deficits.
If Congress undertakes fundamental tax reform, NRCA and allied lawmakers may have the opportunity to address tax issues that have limited economic growth in the roofing industry.
For example, in 1993, Congress raised the depreciation schedule on commercial roofs to 39 years despite the fact the average life span of such a roof is estimated to be about 17 years. NRCA and The Roofing Industry Alliance for Progress commissioned a study that estimated reducing depreciation for commercial roofs to 20 years would accelerate demand in the market, creating nearly 40,000 jobs within the roofing industry. NRCA has been advocating for legislation to achieve this goal for several years and has met with key lawmakers to begin exploring the possibility of finally having the depreciation issue addressed in any major tax reform bill that moves in 2011.
The president and Congress will again need to agree on tax legislation within the next two years or taxes will increase dramatically Jan. 1, 2013. However, it will be difficult for a Republican-controlled House and Democratic Senate to come to agreement.
NRCA will continue advocating for pro-growth tax policies as Congress considers these issues throughout the year.
Duane L. Musser is NRCA's vice president of government relations.