Construction Opportunities in The Inflation Reduction Act

• August 6, 2022
• Benson P. Theuninck, CPA MBT CCIFP

Authored by Perry McGowan : Professionals : CLA (CliftonLarsonAllen) (claconnect.com)

Breaking a lengthy stalemate and attracting wide publicity, a Senate compromise was announced on July 27th between Joe Manchin (D. West Virginia) and other Democrats. As we mentioned in our previous blog, this Inflation Reduction Act proposal is built on a combination of tax and Medicare revenue raisers and includes energy incentives likely to impact construction activity. A few highlights are below:

• A 15% corporate minimum tax is proposed as a revenue raiser but limited to roughly 200 ultra-high income US corporations having average financial earning over $1 billion. This minimum tax sets a floor on corporate tax liabilities at 15% of financial statement income, a burden our clients seem destined to avoid.

• An initiative is proposed to authorize Medicare to negotiate for the price of certain pharmaceuticals, effectively allowing a price break to government. Though not directly impacting construction, drug companies forced to charge the government less might seek to charge private insurers more, conceivably upping some health insurance costs for contractors.

• IRS funding is rising by over $100 billion (a sizable figure, even by government standards), much being for enhanced tax enforcement. Contractors may see a piece of that, possibly through rising audits and IRS correspondence. Significant segments of this funding will likely pursue more lucrative under-reporting sectors outside of our industry. Overall, it seems these IRS burdens may fall lightly on construction.

The energy security provisions of the Act include many new, extended, or enhanced incentives for alternative energy investment. A few highlights include:

• Tax credits for some new or used electric vehicle (EV) purchases are proposed at $7,500 and $4,000, respectively, per vehicle. We have not previously seen a used EV credit. Although these credits may incentivize EV purchases, there is no mechanism for shoring up the Highway Trust Fund, traditionally supported with gas tax revenues.

• The many incentives for solar, wind and other energy sectors may motivate new construction projects with $30 billion tagged for expenditures through the energy production tax credit. We will be commenting in future blogs on other developments in this arena, and in the clean energy manufacturing area where $60 billion is allocated for another tax credit for equipment producers.

• Provisions enhance both business and individual credits. For example, within the package are important renewals and enhancements of the 179D incentives for energy efficient commercial buildings, 45L credits for energy efficient dwellings, and efficiency credits for homeowners.

• Some of these credit provisions may now include prevailing wage and apprenticeship requirements.

The IR Act introduces business incentives that could motivate future construction projects. There are few changes impacting our flow-through clients or for those making $400,000 per year or less. It appears drug companies and the ultra-large C corporations are bearing the brunt of the costs this time.  This legislation faces hefty debate before it makes it through Congress, but we are optimistic that as the details fall into place, our contractors may see benefits.

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