Tax

Policy and Legal

A Tax Victory for Manufacturers

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After a year of pushing back on an IRS rule that would have made it more difficult for manufacturers to invest in new equipment, the NAM can declare a win, according to Bloomberg Government (subscription).

Here’s a recap:

  • Before 2017, businesses could pretty much subtract their full interest payments on debt—but the 2017 tax reform law limited the business interest deduction to 30% of earnings before interest, tax, depreciation and amortization (EBITDA) for tax years starting in 2018.
  • Starting in 2022, the deduction was limited even more, to earnings before interest and tax (EBIT). Excluding depreciation and amortization would make it more expensive for businesses like manufacturers to finance capital equipment purchases.
  • Here’s where it could’ve gotten worse: The Treasury Department had proposed a rule that would have effectively imposed the EBIT standard now instead of two years from now.

For a capital-intensive industry like manufacturing, where businesses use debt to finance important investments in critical technology, that was going to cause a lot of strain even before COVID-19. Throw in a pandemic and a tough economic environment, and that proposed rule looks even worse.

The NAM aggressively pushed back, leading more than 80 trade associations to oppose that change. On Tuesday, the Treasury Department released its final rules—without that provision.

The NAM says: “Congress’s goal in reforming our tax system was to help businesses invest and grow, but the proposed rule would have had the opposite effect,” said NAM Vice President of Tax and Domestic Economic Policy Chris Netram. “We are pleased that Treasury did the right thing, helping support the men and women who make things in America.”

The bottom line: Because of this rule, it will be easier for manufacturers to invest in their business, their employees and their communities.

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