The Inflation Reduction Act—the Democrats’ reconciliation bill—didn’t pass during the 117th Congress, but it was resurrected in the final week of July and signed into law in mid-August. The reconciliation deal caught many in Washington off guard, as discussions surrounding the proposal had failed to produce any results.
Many iterations of the reconciliation package were produced over the past year, from the original $6-trillion proposal in March 2021, the House-passed $3.5 trillion Build Back Better Act in November 2021 and the much-scaled-back health-care subsidy and Medicare drug-pricing proposal that seemed to be the final agreement in July, to the $740-billion climate, health care, deficit reduction and tax bill that ultimately was signed into law.
While preventing what could have been an additional $5 trillion-plus in tax hikes for many Americans, businesses and industries, including construction, the reconciliation bill also includes anti-growth tax policies and injects hundreds of billions of federal dollars into the economy. The bill is a reaction to the present situation, in which the United States is facing recessionary trends, high gas prices, supply-chain woes, workforce shortages and record inflation.
Critically for the construction industry, the bill also contains an expansion of labor policies, limiting opportunities for the majority of construction workers and industry-recognized apprentices. This new bonus credit enhances a host of clean energy tax credits for private employers that impose Davis-Bacon prevailing wage requirements and government-registered apprenticeship labor-hour quotas. This will put many construction companies at a serious competitive disadvantage when it comes to winning contracts for critical energy projects and limit the ability of many otherwise qualified small businesses, skilled construction workers and apprentices to participate in these projects. While the bill provides approximately $250 billion in incentives for clean-energy projects, 83% of the value of these credits lies in projects that the non-union construction workforce, which comprises 87.4% of the industry, will be prevented from participating in due to these labor restrictions. For an industry facing a workforce shortage of 650,000 in 2022, these restrictive labor policies could harm millions of America’s workers.
The linking of labor policy to energy-related tax credits is not a surprise. Senate Finance Committee Chair Ron Wyden, D-Ore., tied a similar proposal to his Clean Energy for America Act in April 2021. The committee’s ranking member, Sen. Mike Crapo, R-Idaho, called the proposal a “dangerous precedent” for amending the tax code. In a letter to Sen. Wyden, Associated Builders and Contractors expressed concern that “the tax proposal would increase costs and have a chilling impact on the ability of contractors—especially local, small, veteran-, disabled-, women- and minority-owned contractors and workers already performing specialty work in the clean-energy economy—to continue to compete to build the clean-energy ecosystem,” and “artificially limit the pool of scarce labor needed to build out the clean-energy marketplace.”
The Inflation Reduction Act was signed into law with the prevailing wage and registered apprenticeship incentives only needing a 51-vote majority in the Senate to pass, now raising the question of other tax benefits and credits available to the construction industry that could face similar labor incentives or requirements. With President Joe Biden promising to serve as the “most pro-union president” and Senate Majority Leader Chuck Schumer calling for “Davis-Bacon and PLA everywhere,” contractors should prepare for more changes.