The National Electrical Contractors Association (NECA) recently surveyed its members to assess how the fiscal cliff will affect the electrical construction industry. The results of the survey clearly indicate that NECA members are being negatively affected by the fiscal cliff and that they are preparing for the worst, should the 2001 and 2003 tax breaks expire on January 1.
The survey netted nearly 400 responses, and all were in unanimity about their concerns over the effect the fiscal cliff. The looming threat of more taxes and less investment continues to hamper growth for electrical contractors nationwide. Nearly two thirds of the respondents said that their company is organized as an S-Corporation — “flow-through” businesses whereby their business income flows through to the shareholder or owner, who then pays taxes on that income at the individual tax rates. Owing to this tax classification of their business, proposals to raise taxes on upper-income Americans will affect most NECA members nationwide. The survey results also confirmed that 80 percent of NECA contractors are small businesses.
According to survey responses, if a deal is not reached to avert the fiscal cliff:
- 67% will reduce their workforce
- 67% will postpone hiring
- 73% will postpone or cancel purchasing new equipment
When asked to compare their business from 2011 to 2012:
- 42% of respondents reported that their company had seen an increase in business in 2012 when compared to 2011
- 39% reported having less work in 2012
- 65% do not expect business to increase in 2013 due to increasing tax burden, uncertainty in the tax code, and sluggish demand for construction
“The results are clear. This survey reaffirms what we have heard from business owners all year long — that until real solutions are finalized by Congress and the President, they are going to hold back on everything, from expenses to hiring,” explained Marco Giamberardino, NECA executive director, government affairs.
“Construction was disproportionately hurt during the recession, and contractors have struggled to make up more ground than other industries in the recovery,” Giamberardino continued “Contractors can be prolific job creators and economic investors when potentially devastating tax increases are on the horizon.”
Concerning the 2001 and 2003 tax cuts, NECA members rated their top tax issues for their companies:
- 41% support changes in individual tax rates
- 28% demand a permanent reduction in the estate tax rate
- 22% called for changes in other investments affecting capital gains and dividend tax rates
- 14% advocated for Energy Efficiency Incentives
During the recession, NECA contractors began to grow their business model beyond the typical electrical construction work. As the industry continues to evolve, more contractors are leading the charge into new energy-efficiency markets and streamlined their operations with services like pre-fabrication, which ultimately benefits their customers.
“There is new demand for energy solutions that electrical contractors can provide, especially with high energy costs,” Giamberardino said. Many credit their company’s survival during the recession with the ability to expand their scope of work in these growth areas.
The survey also gave NECA contractors the opportunity to voice their recommendation on how to address the fiscal cliff:
- 47% think the time for entitlement reform is now.
- 43% believe reducing and prioritizing spending is the best solution.
Additional responses included the following:
- Permanently extending the 2001 and 2003 tax cuts
- Increasing federal investment in infrastructure
- Having both political parties work together to create a bipartisan solution
- Reviewing and reprioritizing federal spending based on actual needs
- Preventing increases in taxes for small businesses so they can afford to hire more employees and help the economy grow.
Businesses continue to yearn for a sense of certainty and permanency from Congress or they will not be able to keep up with the always changing, costly administrative burden. The average annual cost for NECA contractors to comply with yearly changes to the tax code is $51,991. The costs range from $500 to $1 million, depending on the size of the firm. “Our members believe the work is there — but they are limited from pursuing it until they know where their company stands in terms of the tax code,” Giamberardino said.
NECA has repeatedly urged Members of Congress and President Obama to work together to avoid the fiscal cliff and resolve the complex fiscal policy questions hurting electrical contractors.