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.

Business Operations

Why America Is a Great Location for Manufacturers

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Manufacturing is a key driver of the American economy—but how does manufacturing in the United States stack up against the rest of the world?

Recently, The Manufacturing Institute and KPMG—a professional services firms providing innovative business solutions and audit, tax, and advisory services—released a new assessment of the cost of doing business in the manufacturing sector for the United States and 16 other major manufacturing exporting nations around the globe.

High costs, but high value: The study found that primary costs (compensation, property, utilities, taxes and interest rates) in the U.S. are on average 16% higher than in the other markets—yet the U.S. ranks fairly high on the list overall at #5.

  • Another number bears that out: over the past decade, foreign direct investment in U.S. manufacturing has jumped from $569.3 billion in 2006 to a record $1,785.7 billion in 2019.

The benefits of tax reform: Tax reform made the U.S. a more desirable location for manufacturers, the study found. It compared how the U.S. would have ranked with its pre-reform corporate tax rate of 40% (the combined federal and state tax rate) instead of the post-reform corporate rate of 27%. With the old rate, the U.S. would have ranked only 11th.

The benefits of skilled workers: A major U.S. advantage is its supply of high-skilled workers. According to the study, the U.S. ranks at the top of the list for real value added per employee, along with Ireland and Switzerland. As manufacturing has become increasingly advanced, the need for sophisticated employees keeps growing.

While it’s true that American manufacturing requires more skilled workers, as The Manufacturing Institute has previously shown, the existing workforce is still a big draw due to its productivity.

The bottom line: The United States is an attractive location for manufacturers, despite relatively high costs, because of high worker productivity and the overall business environment.

The last word: “We need to continue to push the envelope of technological innovation and workforce development and recruitment in the manufacturing sector,” said Chad Moutray, chief economist for the National Association of Manufacturers and director of the Center for Manufacturing Research at The Manufacturing Institute. “These efforts will serve to strengthen the sector overall, but also help to maintain the nation’s global competitiveness.”

Policy and Legal

Payroll Tax Deferral Confuses Businesses

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President Trump’s plan to have businesses defer the employee’s share of payroll taxes is not going smoothly. The logistical difficulties are significant, and businesses have been expressing their frustration to the Treasury Department, reports The Wall Street Journal (subscription).

The problem: Employers are worried about the administrative burden. Plus, they’re concerned they may be liable for the taxes of employees who have changed jobs. And lastly, if Congress refuses to forgive the taxes, companies will be on the hook for a huge tax bill next year.

While companies await guidance on how to implement the President’s executive order, Treasury Secretary Steve Mnuchin said in an interview on Wednesday that he can’t force firms to stop withholding those taxes. Some tax experts say that companies will be disinclined to take the chance.

NAM involvement: In remarks yesterday to NAM members, IRS Commissioner Chuck Rettig urged companies to continue weighing in with policymakers.

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.

Policy and Legal

Major R&D Bill Introduced in the House

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The new bill—an NAM priority introduced by Rep. Jackie Walorski (R-IN)—would boost the manufacturing industry’s ability to innovate.

The numbers: U.S. manufacturers spent more than $270 billion in R&D in 2018—or nearly two-thirds of all private-sector R&D.

The bill: Rep. Walorski’s bill would further support manufacturers seeking to invest in critical research and development, including:

  • Doubling the traditional R&D tax credit from 20% to 40%;
  • Doubling the alternative simplified tax credit from 14% to 28%; and
  • Making it easier for small businesses to access the R&D tax credit.

An NAM priority: The NAM has consistently pushed lawmakers to include R&D tax policies as part of additional COVID-19 legislation—including in a letter to congressional leadership last week. The NAM’s onshoring plan also calls for enhancing the R&D tax credit.

A word from the NAM: “The manufacturing industry is the backbone of American research and development,” said NAM Senior Director of Tax Policy David Eiselsberg. “This bill would support jobs, boost innovation and help ensure America’s future competitiveness.”

And speaking of NAM tax priorities . . . the Treasury Department sealed a major victory for manufacturers this week by finalizing a rule that will provide relief for manufacturers with high-taxed foreign income.

  • The problem: 2017’s tax reform created a new foreign minimum tax, which imposed a minimum 13.125% tax on foreign earnings. Due to the way the tax interacted with existing international rules, manufacturers with high-taxed foreign earnings could be subject to the new minimum tax.
  • The solution: Treasury adopted key NAM recommendations in its final rule, which creates an elective high-tax exception that would spare manufacturers from paying additional U.S. tax if foreign earnings are subject to a foreign tax rate greater than 18.9%. The rule represents an important step toward implementing the foreign minimum tax according to congressional intent.
Policy and Legal

SEC Finalizes Proxy Rule

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This significant victory on an NAM priority protects manufacturing employees and investors, the NAM’s experts say.

The backstory: Investment advisers and fund managers who oversee Americans’ retirement savings have a voice in the policies of the companies in which the fund invests. These fund managers often turn for assistance to proxy advisory firms to recommend votes on company policies—giving these firms enormous influence.

The problem: Proxy advisory firms have never been subjected to SEC oversight, leading to questionable methodologies, errors, conflicts of interest and a lack of transparency in how they make decisions.

The victory: After years of advocacy by the NAM, the SEC released landmark standards today that do two critical things:

  • Proxy advisory firms will be regulated by the SEC, subjecting these previously unregulated firms to critical oversight and bringing needed transparency to their conflicts and methodologies.
  • Asset managers will receive guidelines laying out how they can exercise due diligence appropriately if they use proxy advisory firms to ensure they are protecting the best interests of investors.

The bottom line: “This is a big win for manufacturers and for manufacturing workers who have money in pension plans, retirement plans and other investments,” said NAM Director of Tax and Domestic Economic Policy Charles Crain. “For years, the NAM has fought for accountability and transparency. This new regulatory framework will protect manufacturing workers and ensure that their investments receive the responsible care they deserve.”

Press Releases

NAM Releases Agenda to Strengthen Manufacturing Supply Chain

Launches Seven-Figure National Advertising Campaign to Bolster Business in America

Washington, D.C. – The National Association of Manufacturers has released a detailed agenda of supply chain policy recommendations to help policymakers as Congress and the administration look at ways to boost long-term economic growth. Manufacturers are also launching a seven-figure national advertising campaign on the importance of U.S. supply chains in the wake of COVID-19. The national television and digital advertising campaign urges leaders to make smart policy decisions that incentivize job creation and investment in America, without closing off critical global supply chains. Such a constructive approach will enable manufacturers to lead America’s recovery and renewal while continuing to produce the vital supplies, medicines and essential products on which Americans’ health and safety depends.

The policies that we are proposing will allow manufacturers to lead our economic recovery by strengthening supply chains and accelerating onshoring, through incentives for creating the next job or investing the next dollar right here in America. We also cannot close off access to critical components or resources that our lifesaving and life-changing products require, said NAM President and CEO Jay Timmons. Manufacturers are working around the clock to create the protective equipment, cleaning supplies, medicines and other essential products in the wake of COVID-19, and we need the right policies so we can make even more here at home and lead a truly historic American renewal.

In April, the NAM released its “American Renewal Action Plan,” which provides a comprehensive list of policy recommendations to guide the country through the stages of response, recovery and renewal.

More information on the campaign can be found at www.nam.org/recovery.

-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 nearly 11.5 million men and women, contributes $2.38 trillion to the U.S. economy annually, 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 Manufacturers or to follow us on Shopfloor, Twitter and Facebook, please visit www.nam.org

Business Operations

Small Manufacturer Leverages Tax Reform to Weather Tough Times

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Rex Heat Treat, a commercial heat treatment company serving industries from aerospace and transportation to construction and defense, is tapping its tax reform benefits to support its workers, strengthen its business and invest in its future. A family-owned company since 1938 with facilities in Lansdale and Bedford, Pennsylvania, and Anniston, Alabama, Rex Heat Treat has been able to keep employees on board and purchase critical new equipment, even in challenging times.

“Without the benefit of tax reform, we might not be sitting in as good of a situation as we are,” said Rex Heat Treat General Manager Johnathan Rex. “We’d be a lot leaner in our bank account, possibly needing to draw on a line of credit to make payroll otherwise. As we weather the effects of COVID-19, these benefits will help us. Our business has more time to maintain our critical infrastructure workforce should this current situation continue on.”

In particular, the manufacturer has been able to use “full expensing,” which allows businesses to take a tax deduction for the cost of new equipment in the year it is bought, rather than taking smaller tax deductions over several years. This reduces the cost of buying capital equipment and accelerates depreciation deductions for manufacturers and business owners, which decreases the company’s tax bill in the year of purchase and frees up cash for that purchase. For a capital-intensive industry like manufacturing, where the latest technology is key to production, this kind of support can be vital, especially among smaller manufacturers with tighter margins.

“Full expensing allows us not just to accelerate the last investment we made but to accelerate the next one—because it’s cash in hand,” said Rex. “We want to do this as quickly as possible, but you can also run your business into the ground if you invest too quickly. Allowing a company to aggressively invest in itself and maintain some cash is a big help.”

As manufacturers around the globe deal with the challenges posed by COVID-19, tax reform has helped give small businesses the resources to protect their employees and their customers.

“Tax policies that allow manufacturers to keep and invest more of their earnings are critically important in uncertain times,” said National Association of Manufacturers Vice President of Tax and Domestic Economic Policy Chris Netram. “As we respond to today’s challenges and prepare for the future, building upon pro-growth policies like these can help support workers, businesses and communities nationwide.”

Business Operations

CARES Act Offers Support for Manufacturers Affected by COVID-19

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On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security Act, or CARES Act. National Association of Manufacturers Director of Tax and Domestic Economic Policy Charles Crain explains its significance.

What is the CARES Act? 

The CARES Act is essentially a rescue vehicle for the economy. It’s not a long-term stimulus package, but rather a short-term emergency spending package to provide a specific injection of funds right now.

We’re facing a dramatic economic slowdown. Businesses don’t have the capital they need to operate because there’s not a lot of commerce going on. People are staying safe, staying inside and spending less money than they ordinarily would, and that has an impact on the economy generally and businesses specifically. The CARES Act is designed to provide capital for businesses and capital for families to weather the crisis.

How does the CARES Act help?

It does a number of different things. Because of the NAM’s leadership and advocacy, the CARES Act includes many of manufacturers’ priorities—priorities we first outlined in the NAM’s “COVID-19 Policy Action Plan Recommendations.”

First, the CARES Act offers almost $350 billion in loans to small businesses. The Small Business Administration Paycheck Protection Program provides loans up to $10 million, and as long as the loans are used to keep employees on payroll or on certain overhead costs like rent, mortgage interest or utilities, that loan will be forgiven.

Second, the CARES Act helps companies keep their employees, both through the PPP and through the Employee Retention Tax Credit, which allows eligible businesses that don’t use the PPP for payroll to claim a tax credit.

Third, the CARES Act allows for businesses to defer employer payroll taxes from March 27 until the end of this year, with half of it due at the end of 2021 and the other half at the end of 2022.

Fourth, it temporarily increases allowable interest deductions from 30% to 50% for 2019 and 2020, helping to provide critical liquidity for businesses.

Fifth, it sends money directly to American families in the form of relief checks up to $1,200 per qualifying individual and up to $500 per child, which helps employees and business owners alike.

How can manufacturers access the programs they need?

There’s a wide range of agencies involved in this effort and many are operating on different timelines. The Paycheck Protection Program, for example, has already begun—eligible businesses can now apply for loans directly with their local lender. For our members, the NAM provides important deadlines and points of access, as we have done with information about loans and tax provisions so far.

Where can manufacturers get more information?

The NAM regularly updates COVID-19 resources for manufacturers. Helpful links for small businesses are also available.

Press Releases

ICYMI: Timmons Discusses Manufacturers’ Response to COVID-19

“We’re All in This Together”

Washington, D.C. – Today, National Association of Manufacturers President and CEO Jay Timmons briefed members of the media on manufacturers’ response to COVID-19. Timmons detailed the NAM’s coordinated effort with federal, state and local officials to provide COVID-19 supplies and how manufacturers are stepping up to provide key medical supplies and resources to keep Americans safe and healthy.

Timmons also highlighted many NAM priorities included in the Senate-passed stimulus package and reiterated the need for state and local officials to deem the manufacturing supply chain as essential.

“It’s been said that this is like a war. And in World War II, we were the arsenal of democracy. Today, manufacturers are called to arm our health care workers in the battle with this deadly virus,” said Timmons. “But it goes beyond the front lines at the hospital. Our grocery stores must be stocked. Our electricity must keep running. Our devices must keep us connected. Our lives may be socially distant, but life goes on. And that means manufacturers must keep making daily life possible.”

Key Wins in Senate-Passed Stimulus Package:

“The Senate acted boldly and approved its COVID-19 relief bill. We’ve been working for weeks to ensure many of manufacturers’ key priorities were included. The bill also takes key steps from the NAM plan by increasing the maximum amount of tax deductions for interest on business loans and by creating an incentive, through loan forgiveness, for small manufacturers to retain their employees during this crisis. Quite frankly, with 90% of our members being small businesses, I think this is one of the most critical parts of the legislation.”

Manufacturers’ Response to COVID-19:

“Manufacturers are stepping up to supply desperately needed health care equipment, repurpose their facilities, supply the essentials for daily life and keep our employees and communities safe.”

“Take, for example, Marlin Steel in Baltimore, a wire products manufacturer. Last Friday, they received an emergency order to make wire racks for test tubes for COVID-19 testing. They hadn’t made test-tube racks before but volunteered to work all weekend to get it done, and they shipped out by Sunday afternoon. That’s the kind of story we’re hearing over and over across the country, on a large and small scale.” 

Overwhelming Support from Manufacturers in Providing Medical Supplies:

  • A manufacturer provided 75,000 gloves, 3,000 Tyvek suits and nearly 20,000 face masks that were sent to New York City.
  • Another company supplied 225,000 gowns and 224,250 over-the-shoe booties to Federal Emergency Management Agency (FEMA).
  • The NAM also helped facilitate one manufacturer’s ability to provide 38 million gloves to FEMA and other critical medical destinations.

Over the past few days, the NAM has seen:

  • 116 companies provide gloves;
  • 106 companies provide protectives units; and
  • 116 companies provide over-the-shoe booties

On the Defense Production Act:

“Manufacturers are producing as much as we possibly can, and whether the DPA is in effect or not, you know, manufacturers aren’t going to be compelled to do the right thing because we already are. That said, if there is a way for DPA to be helpful, for instance… but the fact of the matter is manufacturers are doing everything we can every single day to meet the significant needs for personal protective equipment medical supplies.”

On the Media:

“I want to thank everybody in the media for the crucial role that you’re playing. I realize that these are tough times. I realize that these are times when tempers flare, but there is no more important freedom that we enjoy than the First Amendment to our Constitution, and I want to personally thank you on behalf of the nation’s 13 million manufacturers and their families. I want to thank you for all you do to protect our nation’s freedoms and to get the news and the word out.”

To watch the full video of the remarks, click here.

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 12.8 million men and women, contributes $2.37 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 Manufacturers or to follow us on Twitter and Facebook, please visit www.nam.org.

Press Releases

Manufacturers Call for $1.4 Trillion COVID-19 Resiliency Fund

Includes Desperately Needed Liquidity for Small and Medium-Sized Manufacturers

Washington, D.C. – Today, the National Association of Manufacturers is calling for additional aggressive actions from the federal government to help the industry respond to COVID-19 and future public health emergencies.

Among the additional actions in the NAM’s updated and expanded “COVID-19 Policy Action Plan Recommendations,” the NAM is requesting the federal government create the “Manufacturing Resiliency Fund,” which would include $1.4 trillion in loans to provide desperately needed liquidity to manufacturers and small businesses, protecting the nearly 13 million men and women working within the industry and ensuring their financial security. Manufacturers are also calling on the government to adopt a federal designation that deems the manufacturing supply chain “essential” to help mitigate any interruptions in providing the supplies that are critical to the health and safety of America.

“As manufacturers mobilize to protect the health and well being of our communities and country, the NAM is releasing an expanded set of ‘Policy Action Plan Recommendations’ for Congress and federal agencies,” said NAM President and CEO Jay Timmons. “Our leaders have already acted on many of our original proposals, and if they continue to move swiftly and boldly, manufacturers will be able to rise to this challenge and keep our country healthy, all while ensuring the resilience of our workers, our industry and our economy. This is a crisis unlike anything we’ve seen, and it demands a response of historic proportion.”

The NAM’s updated and expanded “COVID-19 Policy Action Plan Recommendations” identifies five key policy areas where legislative and administrative action would help combat COVID-19 and future public health emergencies:

  • Recognize Manufacturers’ Critical Role in the COVID-19 Response
  • Protect Manufacturers from Insolvency
  • Ensure Economic Security for Manufacturing Workers
  • Reduce Regulatory Burdens
  • Set the Stage for Economic Growth

The NAM released its original action plan on March 9.

-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 12.8 million men and women, contributes $2.37 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 Manufacturers or to follow us on Twitter and Facebook, please visit www.nam.org.

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