Tax

Tax reform means money can go where it’s needed most: empowering manufacturing workers to invest in the community, support their families, grow the economy, create more secure jobs, increase wages and make manufacturing in the U.S. more competitive.

Policy and Legal

New Tax Bill Poses Threat to Manufacturers

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This week, the Senate’s top tax writer, Finance Committee Chairman Ron Wyden (D-OR), introduced the Small Business Tax Fairness Act, which would significantly limit the existing 20% deduction for manufacturers organized as “pass-through” entities.

The background: The 2017 tax reform law created a 20% deduction for business income earned through pass-through entities such as S-corporations or partnerships. The lower tax burden provides manufacturers with additional capital to hire workers, increase wages and expand operations.

  • The Small Business Tax Fairness Act, however, would essentially eliminate the pass-through deduction for all but the very smallest of companies by phasing out the deduction for taxpayers with income above $400,000 – completely eliminating it as income reaches $500,000.
  • Moreover, the bill would negatively impact family-owned businesses by denying the deduction for business held in trusts and estates.

The NAM’s view: As the vast majority of manufacturers are small and organized as pass-through entities, phasing out the deduction as proposed under the bill would ultimately hurt the men and women who make things in America.

  • The current-law provision links wages with the deduction: the more you pay your workers, the larger the benefit for the manufacturer. The proposal does away with this formula, which would break the important link between wages and the deduction.
  • Earlier this year, the NAM released a major tax study on the effects of proposed tax increases, including a repeal of the pass-through deduction. That study found that one million jobs would be lost in just the first two years if those increases were to be implemented.

The last word: “This pass-through deduction is a critical pro-growth tool enabling manufacturers to hire more workers and grow their operations,” said NAM’s Senior Director of Tax Policy David Eiselsberg. “Make no mistake, this legislation would amount to a major tax increase and effectively punish manufacturers that are doing the right thing by hiring workers and paying good wages with a higher tax bill.”

Press Releases

Manufacturers Grateful for Administration’s Emphasis on Strengthening Critical Supply Chains

Washington, D.C. – National Association of Manufacturers President and CEO Jay Timmons released the following statement after the Biden administration’s completion of their 100-day review assessing vulnerabilities in, and strengthening the resilience of, critical supply chains.

“Our industry is grateful for the administration’s continued focus on investments in manufacturing in America. Ramping up production in the United States is one of the key ways we alleviate the supply chain challenges that have been affecting our industry and all American families.

“Succeeding in a global economy also requires the ability to manufacture where customers are; after all, 95% of customers live outside of the United States. The NAM has been leading on supply chain issues, providing initial recommendations for policymakers back in spring 2020. We look forward to working with the administration and learning more about these specific proposals while also continuing our work to ensure we maintain a business climate in the United States that attracts investment and promotes growth and job creation.”

Background:

In May 2020, the NAM released a detailed agenda of policy recommendations to strengthen the manufacturing supply chain in America.

In February 2021, President Biden signed E.O. 14017 directing his administration to conduct a 100-day review of, and address vulnerabilities in, America’s critical supply chains.

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.3 million men and women, contributes $2.35 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 63% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

Policy and Legal

“If Taxes Go Up, I Have Fewer Choices,” Says Manufacturing CEO

Klaussner Home Furnishings has made three increases in its workers’ wages over the past 10 months, while also adding benefits. Yet, the company’s ability to invest in workers and add much-needed equipment may be in danger if Congress proceeds with proposed tax hikes, according to President and CEO Terry McNew. These increases could do real harm to manufacturers at a time when the economy is starting to recover from the pandemic.

Benefits for workers: McNew, who has led Klaussner for about a year and a half, explains that he’s working hard to take the company from the 19th century to the 21st century—“skipping over the 20th,” he says—by eliminating the use of piecework and ensuring that all current workers have full 40-hour workweeks.

  • That transition included the wage increases mentioned above, as well as an expansion of benefits, such as a reduction in health insurance deductibles and the addition of mental and behavioral health benefits.
  • “If taxes go up, I have fewer choices,” says McNew. “I’ll have even more limited resources” for raises and other benefits.

Facility expansion: McNew also credits tax reform with helping Klaussner improve its facilities and buy much-needed equipment.

  • Late last year, the company installed new roofs, and it is currently in the market for new sewing machines. Its new CIO is looking to invest in enterprise resource planning and materials requirements planning software, which will cost about $5 million.
  • McNew says these plans were made possible by a tax provision called full expensing, which allows companies to deduct the full cost of capital expenditures in a single year.

The economic context: McNew points out that manufacturers are dealing with a number of difficulties right now, including higher materials and shipping costs, which are amplifying their worries about potential tax changes.

  • In light of all these factors, McNew says, “I told my executive staff we are not getting raises this year, but instead giving raises to employees.”

The last word: NAM President and CEO Jay Timmons said, “As we emerge from the economic catastrophe caused by COVID-19, American businesses are at a pivotal point in our nation’s history. Manufacturers like Klaussner are helping to lead the economic recovery in the wake of the pandemic. But increasing the tax burden on companies in America would mean fewer American jobs, lower wages and a smaller economy.”

Press Releases

Manufacturers: President’s Budget Rightly Prioritizes Bold Infrastructure Investment

Washington, D.C. – Today, following the release of President Joe Biden’s budget for FY 2022, National Association of Manufacturers President and CEO Jay Timmons released this statement:

“A budget is an important statement of a president’s priorities, and manufacturers are pleased to see President Biden prioritizing bold investments in infrastructure. The president’s clear commitment to ‘investing in ourselves’ is encouraging—and infrastructure is the right place to start. Manufacturers will continue working with both parties to secure a strong infrastructure deal.

“We know the president wants America to succeed and lead, and we agree. There are differences of opinion, however, on how to accomplish that laudatory goal. That is why we remain steadfast in our view that the competitive tax structure for businesses in America that was enacted in 2017 must not be disturbed. After the 2017 tax reform law, America saw the best year for manufacturing job creation in more than two decades, and the NAM’s recent tax study showed that tax increases under consideration would eliminate 1 million jobs in just the first two years. We can’t truly move forward as a country if we take a giant step backward with archaic tax laws.

“Manufacturers are confident that by working together in a bipartisan manner, we can find common ground that lifts everyone up and leaves no one behind. We look forward to continuing to work with the administration and members of the House and Senate from both political parties to accomplish exactly that.”

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.3 million men and women, contributes $2.35 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 63% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

Policy and Legal

Tax Reform Helps JLS Automation Grow and Give Back

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JLS Automation, a maker of robotic packaging systems in York, Pennsylvania, is growing fast—adding workers, expanding its facility and looking toward a bright future. According to Craig Souser, the company’s president and CEO, this growth was enabled in part by the tax reform law passed in 2017. Souser spoke to us recently about the strides that JLS has been making ever since—and noted that any changes to those tax policies could endanger the company’s continuing success.

Ramping up hiring: According to Souser, JLS hired 20 people already this year, which represents 20% growth in its workforce. The company also expects to hire another 20 people, further expanding its talent bench of high-skilled workers.

Providing bonuses: It’s important to JLS that employees feel connected to the work they are doing, and that means ensuring they have a piece of the profits. That’s why the company has a profit-sharing program that gives bonuses to its team, explains Souser.

  • In the past three years alone, JLS has given workers two to three weeks’ pay in profit-sharing bonuses, and this year employees received additional thousand-dollar bonuses across the board. The company also offers other merit-based bonuses to qualifying employees, ensuring that good work gets noticed and rewarded.

Expanding facilities: The company’s hiring spree means it must expand its facilities, doubling the area where employees work and adding space for new capital equipment like an on-site crane and machining capability. According to Souser, the company is likely to spend as much or more on the expansion as it took to buy their current facility in the first place.

Investing in training: Souser also cites tax reform as a factor in the company’s decision to invest aggressively in training efforts.

  • “We can be more investment-driven, allocate more money to any individual training program and hire better people to do training because of tax reform,” said Souser. “We always need to train our people, but we can do it faster and better because of tax reform. There’s no doubt about it.”

Strengthening communities: JLS is focused on developing the workforce of the future, especially within its own community. The company supports local initiatives like Give Local York, which promotes nonprofit organizations that serve York County, and established a scholarship to help students of color attend York College’s engineering program.

The road ahead: All these efforts were made possible in large part by tax reform, Souser stresses. However, if JLS is saddled with a higher tax burden, the company might struggle to maintain this level of expansion. In particular, Souser worries about an increase in the corporate tax rate, harmful changes to the estate tax and the rollback of full expensing (which allows companies to deduct the costs of their equipment purchases in one year, an important tax benefit).

  • “We’re concerned about what we’re hearing on the tax side,” said Souser. “The full expensing provision has been huge. On tax, we like to be able to hire and retain people, and we like to be generous, and if profits get whacked, we can’t invest in them and their futures nearly as much.”
  • “The long-term concern is about pulling back on estate tax relief,” he added. “We are a closely-held company, and that could cause liquidation or asset sales or staffing reductions. It would be potentially devastating to the company. You put all three of these provisions together, and there’s not much to like.”

The last word: “Business is the process of managing risk—and when risk is an unknown, it becomes hard to manage,” said Souser. “It’s difficult enough to deal with a whole variety of issues out there and to remain competitive in an environment where the majority of our competitors are global. When you see something as great as tax reform, the threat of it going away gives you pause.”

Policy and Legal

25% Corporate Tax Rate Will Lead to Job Losses

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If a series of proposed changes to the tax system, including a 25% corporate tax rate, were passed, 1 million jobs would be lost in the first two years, according to a new NAM study.

The data: The analysis—an update to NAM research released in April—considered a range of tax proposals that would change the tax system put into place by the 2017 Tax Cuts and Jobs Act. These included:

  • A corporate tax increase from 21% to 25%;
  • A reinstatement of the corporate alternative minimum tax;
  • An immediate end to expensing of most investments in depreciable assets, to be replaced by the modified accelerated cost recovery system;
  • An immediate repeal of the 20% deduction for certain pass-through business income;
  • The taxation of capital gains and dividends at the same rate as ordinary income for taxpayers with incomes above $1 million, and the taxation of unrealized capital gains at death; and
  • An immediate increase in the top individual tax rate from 37% to 39.6%.

Other findings: Along with the job losses, the NAM’s study also found that the changes would lower GDP by $107 billion in 2023, by $169 billion in 2026 and by $89 billion in 2031.

  • Ordinary capital, or investments in equipment and structures, would be $70 billion less in 2023 and $70 billion and $51 billion less in 2026 and 2031, respectively.

Our view: NAM President and CEO Jay Timmons said, “Manufacturers are encouraged by the bipartisan negotiations continuing this week. Infrastructure investment and retaining competitive tax policies are a win–win for America. But there are some still advocating for increasing taxes on manufacturers—just not quite as much as the 28% proposed originally by President Biden. They might mean well, but that doesn’t change the fact that America will still lose jobs and investment in our communities at a time when manufacturers are working to build the post-pandemic world.”

Press Releases

New Analysis: 25% Corporate Rate Still Leads to Massive Job Loss

Manufacturers: Infrastructure Investment and Retaining Competitive Tax Policies Are a Win–Win for America

Washington, D.C. – As Congress and the Biden administration continue to make progress on negotiations to invest in our nation’s failing infrastructure, the National Association of Manufacturers released a new study detailing the short- and long-term damage to the American economy if the corporate tax rate were raised to 25%, the top marginal tax rate were increased, the 20% pass-through deduction were repealed, certain expensing provisions were eliminated and more.

In April, the NAM released a study on the harmful impacts of rolling back key provisions of the Tax Cuts and Jobs Act, including raising the corporate tax rate to 28%.

“Manufacturers are encouraged by the bipartisan negotiations continuing this week. Infrastructure investment and retaining competitive tax policies are a win–win for America. But there are some still advocating for increasing taxes on manufacturers—just not quite as much as the 28% proposed originally by President Biden. They might mean well, but that doesn’t change the fact that America will still lose jobs and investment in our communities at a time when manufacturers are working to build the post-pandemic world,” said NAM President and CEO Jay Timmons.

The negative consequences would include the following:

  • One million jobs would be lost in the first two years.
  • The average reduction in employment would be equivalent to a loss of 500,000 jobs per year over the next decade.
  • By 2023, GDP would be down by $107 billion, by $169 billion in 2026 and by $89 billion in 2031.
  • Ordinary capital, or investments in equipment and structures, would be $70 billion less in 2023 and $70 billion and $51 billion less in 2026 and 2031, respectively.
  • And more.

Click here for a summary of the study’s details and findings. Read the full study, “Dynamic Estimates of the Macroeconomic Effects of Tax Rate Increases and Other Tax Policy Changes,” conducted by Rice University economists John W. Diamond and George R. Zodrow,” here.

National Association of Manufacturers President and CEO Jay Timmons will host a media conference call today at 1:15 p.m. EDT following this year’s NAM State of Manufacturing Address.

You can watch the 2021 NAM State of Manufacturing Address beginning Friday at noon EDT here. RSVP to [email protected] for conference call details.

Background on manufacturing growth following the enactment of tax reform in 2017:

  • In 2018, manufacturers added 263,000 new jobs. That was the best year for job creation in manufacturing in 21 years.
  • In 2018, manufacturing wages increased 3% and continued going up—by 2.8% in 2019 and by 3% in 2020. Those were the fastest rates of annual growth since 2003.
  • Manufacturing capital spending grew by 4.5% and 5.7% in 2018 and 2019, respectively.
  • Overall, manufacturing production grew 2.7% in 2018, with December 2018 being the best month for manufacturing output since May 2008.

Manufacturers strongly support President Biden’s call for bold infrastructure investment, which can be achieved through a combination of revenue sources like those identified in the NAM’s “Building to Win.”

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.3 million men and women, contributes $2.35 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 63% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org

Press Releases

Manufacturers React to President Biden’s First Speech to Congress

Timmons: “Manufacturers are focused on building the next, post-pandemic world.”

Washington, D.C. – Following President Joe Biden’s first presidential address to Congress, National Association of Manufacturers President and CEO Jay Timmons released this statement:

“Thanks to the leadership of vaccine manufacturers and the Biden administration’s successful vaccine distribution efforts, Americans are getting back to the activities and the people they love. Though the capacity limits in the House chamber tonight remind us that we still have a long way to go, our future is looking brighter.

“We look forward to working with President Biden to achieve historic infrastructure investment, including the many priorities offered in our ‘Building to Win’ plan, which, in addition to identifying areas of investment, also provides multiple funding solutions.

“Manufacturers have also provided roadmaps on critical issues ranging from immigration to climate change. We’re ready to work with President Biden and members of any party to deliver bipartisan progress on these issues and more, all while ensuring we’re strengthening the manufacturing workforce, not jeopardizing manufacturing growth in the United States.

“To that point, raising taxes on manufacturers—including many small businesses that pay at the individual rate—would stop our recovery in its tracks; we would lose 1 million jobs in just the first two years alone. Small manufacturers would be especially hard hit at this critical juncture, restricting their ability to raise wages and benefits, hire more workers and invest in their communities. Similarly, changes to the longstanding tax rules on the transfer of family businesses to the next generation of manufacturers would cost American jobs.

“Returning to archaic tax policies and one of the highest business tax rates in the developed world is not the way to build our future, nor are federal policies to force workers to join a union. Anti-worker policies like the PRO Act would inject uncertainty by driving a wedge in established employee–employer relationships and curtail future manufacturing investments that support our communities and families.

“As we continue to get armed against COVID-19, manufacturers are focused on building the next, post-pandemic world—one that affords even greater opportunity for all Americans.”

Background:

The NAM continues to put forward commonsense proposals to educate and inform policymakers on ways to strengthen manufacturing in America while achieving our shared objectives.

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs 12.3 million men and women, contributes $2.35 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 63% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

Business Operations

How Tax Reform Helped Optimax Invest in Workers

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After the passage of tax reform in 2017, the lower corporate tax rate and faster tax depreciation of capital equipment purchases enabled Optimax Systems—a manufacturer specializing in optics for semiconductor, aerospace and defense technologies—to reinvest in its workers and operations.

Hiring new workers: Since 2018, the New York manufacturer has hired aggressively, increasing its full-time headcount from 290 to 340. It has also raised salaries for employees, with an average annual increase of 4.8% since 2017—well above the company’s annual increases before 2017. Optimax sees the increases in hiring and wages as a vote of confidence in its workforce—and as a way to pay forward the benefits of tax reform.

Expanding their operations: Since 2018, Optimax has doubled the size of its manufacturing facility, increasing the space from 60,000 square feet to 120,000 square feet. The company also increased investment in equipment, boosting its annual investment from an average of roughly $3 million per year between 2014 and 2017 to an annualized rate of more than $7 million per year since 2018.

What we’re doing: To support companies like Optimax and its customers, the NAM is leading the effort to ensure that the tax code continues to incentivize growth, as well as working to make manufacturers’ priorities and concerns known to the Biden administration and lawmakers. For companies like Optimax, maintaining the competitive tax rate is critical, which is why the NAM is vocal about the potential harm of tax hikes.

The costs of tax hikes: A new study conducted by Rice University economists for the NAM found that increasing the corporate tax rate along with other harmful tax changes could lead to 1 million fewer jobs in the first two years.

  • “As we slowly emerge from the economic catastrophe caused by COVID-19, American businesses are at a pivotal point in our nation’s history,” said NAM President and CEO Jay Timmons. “Manufacturers can, and should, lead the economic recovery in the wake of the pandemic. But this study tells us quantitatively what manufacturers from coast to coast will tell you qualitatively: increasing the tax burden on companies in America means fewer American jobs.”

The last word: “Optimax has a mission of enabling customer success and employee prosperity. We have learned, through 30 years of experience, that there is no better way to do this than to reinvest our profits back into the business and back into our people,” said Optimax Controller Tom Starin. “Tax reform has freed up an additional piece of the profit pie, allowing the company to double down, quite literally, on our mission of enabling customer success and employee prosperity.”

Press Releases

Manufacturers Launch Ad Campaign to Protect American Jobs

Timmons: Now is not the time to take a step back; it’s time to build the next, post-pandemic world, which can only be done with a competitive tax code

Washington, D.C. – Following the release of the National Association of Manufacturers’ study on the impact of proposed tax increases under consideration in Congress, the association is launching a six-figure ad campaign calling on Congress to protect manufacturing jobs. The print, radio and digital ads will run in Washington, D.C., and in key states.

“Corporate tax hikes and other tax reform rollbacks under consideration could lead to 1 million fewer jobs in the first two years alone and would drag down economic growth,” said NAM President and CEO Jay Timmons. “After the 2017 tax reform delivered more globally competitive tax rates, manufacturers kept our promises to create jobs, raise wages and benefits and invest in our communities. Now is not the time to take a step back; it’s time to build the next, post-pandemic world, which can only be done with a competitive tax code.”

Background:

Key findings from the NAM research paper, “Dynamic Estimates of the Macroeconomic Effects of Tax Rate Increases and Other Tax Policy Changes,” on the impact of proposed tax increases include the following:

  • America would lose 1 million jobs in the first two years after implementation and cause a loss of 600,000 jobs on average each year over the next decade.
  • By 2023, GDP would be down by $117 billion, by $190 billion in 2026 and by $119 billion in 2031.
  • Ordinary capital, or investments in equipment and structures, would be $80 billion less in 2023 and $83 billion and $66 billion less in 2026 and 2031, respectively.

Background on manufacturing growth following the enactment of tax reform in 2017:

  • In 2018, manufacturers added 263,000 new jobs. That was the best year for job creation in manufacturing in 21 years.
  • In 2018, manufacturing wages increased 3% and continued going up—by 2.8% in 2019 and by 3% in 2020. Those were the fastest rates of annual growth since 2003.
  • Manufacturing capital spending grew by 4.5% and 5.7% in 2018 and 2019, respectively.
  • Overall, manufacturing production grew 2.7% in 2018, with December 2018 being the best month for manufacturing output since May 2008.

Read the full study here and click here for a summary of the study’s details and findings.

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs 12.3 million men and women, contributes $2.32 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 63% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

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