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The White House last week released legislative language for the “American Jobs Act,” a $447 billion jobs bill outlined by President Obama in a nationally televised address to the nation on Sept. 8.
As the President took to the road to stump for his plan in such key battleground states as Virginia, Ohio and North Carolina, response to the legislation on Capitol Hill was mixed.
While Democrats have largely rallied around the President, Republicans have expressed opposition to the White House’s proposed “pay-for’s,” but have generally remained silent on the specifics of the overall plan.
NAHB also shares the concern that paying for the jobs bill mainly through tax increases will have a negative impact on job creation and the housing industry, which is counterproductive to the bill’s aims. In fact, most of the proposed pay-fors have been previously opposed by both Democrats and Republicans.
To offset the $447 billion cost of the job creation effort, the White House is proposing to:
- Limit itemized deductions — such as those for charitable deductions, the mortgage interest deduction and other exemptions — to 28% for individuals earning more than $200,000 and families earning more than $250,000.
This limitation would also apply to the Alternative Minimum Tax.
Deductions under Section 199, the domestic activities production deduction, which is frequently claimed by builders, would also be limited unless the builder is organized as a C-Corp.
This proposal would also tax higher-income taxpayers on income from tax-exempt bonds. This would make tax-exempt bonds less attractive and impact multifamily rental bonds and mortgage revenue bonds.
These changes would take effect in 2013, raising about an estimated $400 billion over 10 years.
- Tax carried interest as ordinary income starting in 2013. This would have a significant negative impact on multifamily builders using carried interest. This provision is expected to raise about $18 billion over the next decade.
- Take away several special preferences for the oil and gas industry that collectively would raise $40 billion.
- Eliminate accelerated depreciation for corporate jets, which would raise $3 billion.
While it is unlikely that the entire package will ever become law, it is possible that some individual pieces, such as the extension of the current payroll tax cut, will make it through Congress.
There are a number of proposals in the package that may be of interest to builders:
- Employee payroll taxes would be reduced to 3.1% for 2012. They were temporarily cut to 4.2% this year from the normal rate of 6.2%.
- Employers in 2012 would see their portion of the payroll tax also lowered to 3.1% on up to $5 million in wages.
- From Oct. 1, employers would pay no payroll taxes for new hires or for increases in wages up to $50 million.
- The 100% bonus depreciation would be extended through 2012, applying only to property with a life of less than 20 years; commercial and residential rental property would not qualify.
- A requirement for the government to withhold 3% of payments to contractors providing certain property or services would be delayed until 2014.
- The current tax credit for hiring veterans with a service-connected disability who have been unemployed for at least six months would be doubled to $9,600. Employers would receive new credits of $2,400 and $5,600 for hiring veterans who have been unemployed for at least four weeks and six months, respectively.
- Employers would receive a maximum $4,000 credit for hiring workers who have been unemployed at least six months.
The President’s jobs bill would require Davis-Bacon compliance on any project funded directly by, or assisted in whole or in part, under the legislation. This would apply to any of these new programs:
- $15 billion to rehabilitate and refurbish vacant and foreclosed homes would be authorized under Project Rebuild.
For-profits would be eligible as direct grant recipients and would not have to partner with a non-profit or local government entity.
Two-thirds of the funding would be allocated by formula to state and local governments; the remainder would be allocated through a competitive process to any eligible entity, including for-profit builders.
The formula for allocating funds to state and local governments would be based on foreclosure rates, mortgage defaults and delinquencies.
Grantees would also have to show how they would use the funds to leverage private investment. Eligible uses would include financing mechanisms, property acquisition/rehabilitation, land banks, demolition and redevelopment.
Eligible property types would include foreclosed, abandoned, blighted, demolished and vacant residential and commercial properties. If a home were later resold, it would have to be for an amount less than or equal to the acquisition or rehabilitation cost.
- $25 billion would be authorized to modernize, renovate and repair elementary and secondary public school buildings.
- $27 billion would be provided for highway restoration, repair and construction projects.
The Davis-Bacon requirements are a major impediment for private sector firms seeking to participate in these new programs and exemplify the unnecessary and burdensome regulations cited by many on Capitol Hill as a constraint on job creation by small businesses.
'Super Committee' Begins Deliberations
Meanwhile, the Administration’s plan to pay for the legislation is complicating the efforts of the Joint Select Committee on Deficit Reduction, the 12-member congressional “super committee” that has been tasked with finding at least $1.2 trillion in additional spending cuts before Thanksgiving.
If adopted, Obama’s proposals to pay for his jobs plan would not be available to the super committee.
On Sept. 13, the super committee — composed of three House Republicans, three House Democrats, three Senate Republicans and three Senate Democrats — held its second meeting in an effort to find common ground on spending cuts and revenue raisers for the next decade.
As this process unfolds in the coming weeks, NAHB will continue to monitor events closely and urge lawmakers to protect key housing tax incentives — particularly during a period where the housing market is extremely fragile and any changes to housing tax policy would result in lost jobs and reduced property tax revenues for state and local governments.
For more information, email J.P. Delmore at NAHB, or call him at 800-368-5242 x8412.