As the new chair of the U.S. House Ways and Means Committee, Rep. Jason Smith, R-Mo., plays a major role in setting the tax agenda for congressional Republicans. The job of chief tax writer takes on special importance in light of the looming expiration of key tax provisions included in the Tax Cuts and Jobs Act of 2017, setting up another “fiscal cliff” at the end of 2025.
Extending or making permanent a number of these policies will be critical to the success of the construction industry, particularly the many small and family-owned businesses that make up a significant portion of the industry.
Thankfully, Smith is a proven leader on the issues that matter to small, family-owned and closely held businesses, and the primacy of Main Street is already evident in his approach to the committee’s agenda. Early in his tenure, he has committed to helping working families across America and building on the successes of the TCJA. As the lead sponsor of the Main Street Tax Certainty Act in previous Congresses, Smith has called for the permanence of the 20% deduction for pass-through entities that helps level the playing field and provides parity for small businesses. The 94% of construction firms currently organized as pass-through businesses could see a significant increase in their tax liability if this provision were to expire, making it more difficult for them to compete with larger firms, invest in their businesses and hire workers.
Smith also previously led on legislation to eliminate the estate tax and help family-owned businesses pass ownership to the next generation. The current doubling of the estate-tax exemption is set to expire after 2025; slashing this benefit in half would make it more difficult for these businesses to transfer ownership to family members without incurring significant tax liabilities, leading to more family-owned construction businesses being sold to outside investors or being forced to close altogether.
Finally, the top tax rate for individuals is set to revert to pre-2018 levels after 2025, increasing from 37% to 39.6%. Coupled with the 20% deduction for pass-through businesses, the lower top rate has been a key tool for many small businesses to remain competitive with larger corporations. A higher individual rate could make it more difficult for construction firms to invest in their businesses and attract and retain talent, which could be particularly problematic in a tight labor market where construction companies are already struggling to find skilled workers.
The next two to three years will be pivotal to the future and growth of the construction industry. While divided government tends to produce little compromise on tax policy, it is critical for the construction industry to continue advocating for the important benefits that the current tax code offers to its employers, their employees and their families and the U.S. economy. Smith is a proven leader on the issues that matter to small and family-owned businesses.
