U.S. Needs Competitive Tax System
Randy Wolken, President & CEO
A strong and competitive America requires a tax system that enhances manufacturing growth. It’s critical that Congress make the pro-growth tax provisions from President Trump’s 2017 Tax Cuts and Jobs Act, permanent.
The reforms would allow manufacturers to increase hiring, expand operations, and invest in their communities. This would have a very positive effect on small and medium-sized businesses, in particular.
Key provisions of the 2017 Trump tax reforms have already expired, and many more are set to lapse later this year. Without action, manufacturers will miss out on tax incentives for research and development (R&D) and equipment purchases. Also, small businesses and family-owned manufacturers will see their tax rate double to as high as 43%. We can’t afford to lose these key provisions when global competition is intensifying.
According to a recent National Association of Manufacturers (NAM) study, if Congress fails to preserve tax reform by the end of this year, nearly 6 million U.S. jobs—more than 1 million of them in manufacturing—will be lost and America will lose some $1.1 trillion in GDP and $540 billion in wages.
Congress must act to restore key pro-manufacturing tax provisions that have already sunset and make permanent those that are scheduled to expire. It’s time for Congress to deliver a competitive tax code for manufacturers and set American workers up for success. Let’s make sure that the next chapter in America’s manufacturing story is one of growth and opportunity.
MACNY has heard from our members. They need a tax code that allows their businesses to be competitive in a global economy. Congress needs to act quickly to ensure the tax code supports innovation. It’s a fact that the private sector accounts for more than 75% of total R&D spending. Small businesses alone account for over $90 billion of private-sector R&D investments. With wages and salaries comprising approximately 75% of R&D spending, the R&D amortization requirement is first and foremost a jobs issue, with R&D jobs paying an average wage of more than $155,000. Just as important, for every $1 billion in R&D spending, 17,000 jobs are supported.
Members need a tax code that enables businesses to finance growth. Before January 1, 2022, businesses’ interest expense deductions were limited by section 163(j) to 30% of their earnings before interest, tax, depreciation, and amortization. Interest deductions are now limited to 30% of earnings before interest and taxation (EBIT). By excluding depreciation and amortization, the stricter EBIT standard acts as a tax on investment, making it more expensive for capital intensive companies throughout the supply chain to finance job-creating growth. These key areas make it harder to compete with companies in other countries that have great tax incentives for financing their growth.
Members also need a key incentive for capital equipment purchases. A 100% deduction for the purchase of equipment and machinery in the tax year purchased was in place from 2017 through 2022. Congress enacted full expensing to spur investments and ensure the U.S. was well-positioned to attract capital in a competitive global marketplace. However, full expensing began to phase out at the beginning of 2023 and will be eliminated by 2027. We can’t allow this to occur as doing so will severely limit capital investment for U.S. companies.
Please reach out to your federal representatives to support these critical changes. To learn more about these necessary changes and how you can advocate for them, please contact our Government Relations Director, Tiffany Latino-Gerlock, at [email protected]. Together, we can improve the tax code to provide the needed growth in our manufacturing sector.