Tax

To restore a U.S. tax landscape that promotes manufacturing competitiveness, Congress should act quickly in advancing bicameral, bipartisan legislation that would ensure the tax code once again supports innovation.

That was the message from the NAM and several manufacturers to lawmakers last week.

What’s going on: The NAM and company leadership from manufacturers Westminster Tool and Brewer Science visited Capitol Hill last week to brief legislators on a harmful change to the tax treatment of research and development.

• The briefing was held by the NAM-led R&D Coalition in cooperation with the offices of Reps. John Larson (D-CT) and Ron Estes (R-KS) and Sens. Maggie Hassan (D-NH) and Todd Young (R-IN).
• Larson and Estes introduced the American Innovation and R&D Competitiveness Act in the House, while Sens. Hassan and Young introduced the American Innovation and Jobs Act in the Senate. These are the measures manufacturers are urging legislators to pass.

Why it matters: “We paid $26,679 per full-time employee in additional federal tax this past year” because of the change, Westminster Tool Chief Financial Officer Colby Coombs told lawmakers at the briefing.

• “This increased federal tax on R&D forced us to cancel a major aviation contract that would have added … new jobs in our community and forgo a significant capital investment. Without fixing this issue, in 2023, we expect an additional tax bill of almost $18,000 per employee,” he continued.
• Added Brewer Science Government Programs Director Doyle Edwards: “We have lost IP to China in the past, and fight[ing] that in the courts is a no-win situation. So the only way to win is to out-invent them. And that’s what we invest our money to do. However, with [the tax change] … we’re allowing China to actually catch up.”

The background: For nearly seven decades, manufacturers could deduct their R&D expenses fully in the year in which the costs were incurred. However, since the change last year, businesses must instead deduct these expenses over a period of years, making R&D more costly. 

Legislative fix: To protect manufacturers’ R&D, jobs and competitiveness, Congress should move immediately on bipartisan legislation to restore R&D expensing.

• “R&D is the lifeblood of advanced technology development for our company, for our industry, but really for the nation,” Edwards continued. “And so our message is, we need your help. We need your leadership to resolve this policy issue.”

Take action: Learn more about what the NAM is doing to advocate for sound tax policy at our R&D action center.

Washington, D.C. – Today, the National Association of Manufacturers, the Confederation of Industrial Chambers of Mexico and the Canadian Manufacturers & Exporters hosted the inaugural North American Manufacturing Conference at NAM headquarters where they formalized manufacturers’ commitment to supporting close economic ties between the United States, Canada and Mexico. NAM President and CEO Jay Timmons, CONCAMIN President José Antonio Abugaber Andonie and CME President and CEO Dennis A. Darby signed a memorandum of understanding, which will serve as a roadmap to the cooperation between the three organizations and outlines the key goals and objectives for the partnership.

“There’s never been a greater need for us to stand together. The world is caught between different political and economic systems. One system, our system here in North America, enriches lives and lifts people up into freedom and prosperity, while other systems oppress their people and rob them of their liberty,” said Timmons. “Together, we are an indomitable force for prosperity. The United States–Mexico–Canada Agreement is a powerful force multiplier for the already unmatched productive power of our industries. And this agreement reminds us of what we can achieve when we work together.”

“Today we live in a new reality. The commercial competition with China, the pandemic, the conflict in Ukraine, among others, place us before a second great industrial transformation in North America, the first one being propelled by NAFTA 30 years ago. Some call it nearshoring, friend-shoring, ally-shoring or reshoring. No matter the name, the truth is that this phenomenon is modifying the structure of international industrial organization. North America is the epicenter of this transformation,” said Abugaber Andonie.

“Manufacturers are an important driver of economic development and prosperity. We are key players in the changes and challenges of the 21st century,” said Darby. “This agreement between representatives of Canada, the United States and Mexico reinforces the strong ties between our three economies and manufacturing industries and serves as a reminder that we can achieve so much more when we work together. We would like to thank our colleagues from the NAM and CONCAMIN for this agreement, and we look forward to future cooperation.”

The MOU calls for the organizations to share information on each organization’s services and activities and to jointly develop the North American manufacturing agenda of the future. The associations will share best practices and policy recommendations to assist manufacturers in addressing future commercial challenges in North America, including, but not limited to, global competitiveness. They will work collaboratively to understand the challenges facing manufacturers in North America and commit to host the North American Manufacturing Conference on an annual basis in Mexico, Canada or the United States, on a rotating basis.

Click here to view the full text of the MOU.

About Canadian Manufacturers & Exporters

Since 1871, Canadian Manufacturers & Exporters has been helping manufacturers grow at home and compete around the world. Our focus is to ensure manufacturers are recognized as engines for growth in the economy, with Canada acknowledged as both a global leader and innovator in advanced manufacturing and a global leader in exporting. CME is a member-driven association that directly represents more than 2,500 leading companies that account for an estimated 82% of manufacturing output and 90% of Canada’s exports.

CONFEDERACIÓN DE CÁMARAS INDUSTRIALES DE LOS ESTADOS UNIDOS MEXICANOS

The Confederation of Industrial Chambers of the United Mexican States, CONCAMIN, established in 1918, is the main organization representing the different industrial sectors and activities of high importance for the economic development of Mexico.

It is an effective business representation organization, recognized by its leadership and full capacity to develop projects and initiatives through its work commissions, that contribute to achieve sustained development for the Mexican industry.

• We are an Organization committed to the economic growth of the country.
• Obligatory organ of consultation of the three orders of government in all those topics related to the industry in Mexico, according to the Law of Business Chambers and their Confederations.
• Annually, about 30% of the Gross Domestic Product that is generated in the country comes from those affiliated with the Confederation of Industrial Chambers of the United Mexican States.

In accordance with the provisions of the Law of Business Chambers and their Confederations, we are an organization of consultation and collaboration of the State; Therefore, we maintain a close, harmonious and purposeful relationship with the three levels of government and the powers of the nation.

-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 13 million men and women, contributes $2.91 trillion to the U.S. economy annually and accounts for 55% 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.

With many manufacturers relying on financing to expand their businesses and hire workers, Congress should reverse a stricter limitation on interest deductibility that went into effect in 2022, the NAM told policymakers last week.

What’s going on: The stricter limitation is effectively a tax on investment, NAM Senior Director of Tax Policy David Eiselsberg said at a briefing last Thursday hosted by Sens. Shelley Moore Capito (R—W.VA) and Kyrsten Sinema (I—AZ) on the American Investment and Manufacturing Act.

• “The stricter limitation makes it more expensive for capital-intensive companies—which many manufacturers are—to finance critical purchases, grow their businesses and hire new workers,” Eiselsberg said. “Failing to reverse this harmful change could cost the U.S. economy 467,000 jobs and reduce U.S. GDP by $43.8 billion,” he added, citing a 2022 EY study prepared for the NAM.

The background: Before last year, manufacturers were allowed to deduct 30% of their earnings before interest, tax, depreciation and amortization (known as EBITDA). The 2022 tax change limits that deduction to earnings before interest and taxes (EBIT).

• The AIM Act, which was introduced in April by Capito and Sinema, would permanently reinstate the EBITDA standard.

Financing growth —and competitiveness: Reversing the stricter limitation would safeguard manufacturers’ ability to finance growth, which is particularly important “ at a time when the cost of capital itself has increased due to rising interest rates,” Eiselsberg said.

• The current policy puts the U.S. at a global disadvantage, since, he continued, “of the more than 30 [Organization for Economic Cooperation and Development] OECD countries with an earnings-based interest limitation, the U.S. is the only one that employs an EBIT standard.”

NAM in the news: POLITICO highlighted the AIM briefing.

Learn more and take action: Visit the NAM’s Full
Expensing Action Center, which features a tool that lets manufacturers to send customized messages directly to Congress.

Washington, D.C. – National Association of Manufacturers President and CEO Jay Timmons released the following statement on the United Auto Workers’ announcement to start a “Stand Up” strike:

“The impact of this strike will echo far beyond the city of Detroit as multiple economic analyses have demonstrated. The small and medium-sized manufacturers across the country that make up the automotive sector’s integrated supply chain will feel the brunt of this work stoppage, whether they are a union shop or not.

“American families are already feeling economic pressures from near-record high inflation and this will only inflict more pain. We urge a swift resolution to end this strike and avoid further undermining the strength of our industry and harming our broader economy.”

-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 13 million men and women, contributes $2.91 trillion to the U.S. economy annually and accounts for 55% 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.

Manufacturers are the least optimistic they’ve been about the economy and their businesses since 2020, according to the NAM’s Q3 2023 Manufacturers’ Outlook Survey, released yesterday.

Notable: Here are some of the key findings from the latest survey, which was conducted last month:

• Just 65.1% of manufacturers feel positive about their company’s future, a decline from the previous quarter (67.0%).
• Some 69.1% of small manufacturers and 63.2% of all respondents would increase hiring or employee compensation if their regulatory burdens decreased.
• More than 70% of manufacturers would buy additional capital equipment if those same burdens were lightened.
• The top challenges facing manufacturers—whose concern about an unfavorable business climate was at its highest since 2017 in this survey—are retaining a high-quality workforce (72.1%), a weakened domestic economy (60.7%), rising health care/insurance costs (45.5%) and supply chain issues (37.8%).

The NAM says: “[T]his survey makes clear that unbalanced federal regulations are harming families and communities,” said NAM President and CEO Jay Timmons.

• “Congress and the administration can help correct this trend by restoring sensible regulations, enacting further permitting reforms, taking action to keep our tax code competitive … and [moving to] build on the progress we achieved with tax reform, the Bipartisan Infrastructure Law, the CHIPS and Science Act and more.”

The average household income in the U.S. fell for the third year in a row in 2022, according to The Wall Street Journal (subscription).

What’s going on: “Americans’ inflation-adjusted median household income fell to $74,580 in 2022, declining 2.3% from the 2021 estimate of $76,330, the Census Bureau said Tuesday. The amount has dropped 4.7% since its peak in 2019.”

• Inflation reached a 40-year high last summer “as the pandemic upended supply chains and the Ukraine war drove up energy prices.”

By region and race: Median incomes dropped by 3% to 5% in the Northeast, West and Midwest, but were unchanged in the South.

• “White households saw median income decline by 3.6% in 2022 from the prior year to $81,100, while incomes in Black, Asian and Hispanic households were essentially unchanged.”

Earnings: Wages and salaries “showed a mixed picture,” with average earnings in 2022 declining 2.2% from 2021.

• Among full-time, year-round workers, average earnings decreased more moderately, by 1.3%.
• The 2022 poverty rate was similar to the 2021 rate.

A turning tide? In recent months, however, inflation has improved following benchmark interest-rate hikes, giving a boost to Americans’ purchasing power.

• “Shifting into the present and into the future, the prospects are better for wages to make up for some of the ground lost during the last couple of years,” one source told the Journal.
• Beginning at the end of 2022, wage growth outstripped inflation, and in July inflation-adjusted pay increased 3%.

Washington, D.C. – The National Association of Manufacturers released its Manufacturers’ Outlook Survey for the third quarter of 2023, which registered the lowest level of optimism among NAM members (65.1%) since Q2 2020, as the sector continues to confront a tight labor market, unbalanced federal regulations and critical policy debates in Congress.

“Manufacturers continue to be challenged in today’s economy, but what this survey makes clear is that unbalanced federal regulations are harming families and communities, with nearly two out of three manufacturers reporting that the regulatory burden is preventing them from hiring more workers or increasing pay and benefits,” said NAM President and CEO Jay Timmons. “Congress and the administration can help correct this trend by restoring sensible regulations, enacting further permitting reforms, taking action to keep our tax code competitive and other bipartisan steps to strengthen manufacturing in America and build on the progress we achieved with tax reform, the Bipartisan Infrastructure Law, the CHIPS and Science Act and more.”

Key Survey Findings:

• Only 65.1% of respondents felt positive in their company’s outlook, edging down from 67.0% in the second quarter. It was the fourth straight reading below the historical average (74.9%).
• Concern about an unfavorable business climate was the highest in six years (Q2 2017).
• The survey found that 69.1% of small manufacturers, and 63.2% of all respondents, would hire more workers or increase compensation if the regulatory burden decreased.
• More than 70% of manufacturers would purchase more capital equipment if the regulatory burden on manufacturers decreased, with 48.6% increasing compensation, 48.6% hiring more workers, 42.5% expanding their U.S. facilities and 38.4% investing in research.
• The top challenges facing manufacturers include attracting and retaining a quality workforce (72.1%), weaker domestic economy (60.7%), rising health care/insurance costs (60.1%), unfavorable business climate (56.7%), increased raw material costs (45.5%) and supply chain challenges (37.8%).

You can learn more at the NAM’s online regulatory action center here.

The NAM releases these results to the public each quarter. Further information on the survey is available 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 nearly 13 million men and women, contributes $2.91 trillion to the U.S. economy annually and accounts for 55% 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.

An overtime pay rule proposed last week by the Biden administration could cost employers—including manufacturers—up to $664 million over a decade, according to Inc. magazine.

What’s going on: A draft regulation set forth last week by the Labor Department “would require employers to provide overtime pay to salaried workers who earn less than $1,059 per week, or around $55,000 per year. The current overtime threshold is $35,568. The Labor Department is responsible for setting the threshold that requires employers to pay out overtime.​”

• In compliance with the Fair Labor Standards Act, many companies already pay overtime to hourly employees who work more than 40 hours a week. While the FLSA doesn’t apply to salaried workers, the new requirement would.

Why it’s problematic: If the rule goes into effect, its cost to employers could be as high as “$664 million (with a 7 percent discount rate) over a 10-year period,” according to the Labor Department—and that’s a price manufacturers can ill afford, according to the NAM.

• “Manufacturers have spent the past several years adapting operations and personnel management resources to meet the evolving needs of their workforce in a post-pandemic environment, including through improved wages and benefits and productive workplace accommodations,” said NAM Managing Vice President of Policy Chris Netram.
• “The … proposed rule would inject new regulatory burdens and compliance costs to an industry already reeling from workforce shortages and an onslaught of other unbalanced regulations.”

What’s next: Once published in the Federal Register, the draft regulation will be subject to a 60-day public comment period. 

Washington, D.C. – In response to the U.S. Department of Labor’s issuance today of a proposed rule altering the exemptions for overtime eligibility under the Fair Labor Standards Act, National Association of Manufacturers Managing Vice President of Policy Chris Netram issued the following statement:

“Manufacturers have spent the past several years adapting operations and personnel management resources to meet the evolving needs of their workforce in a post-pandemic environment, including through improved wages and benefits and productive workplace accommodations. The DOL’s proposed rule would inject new regulatory burdens and compliance costs to an industry already reeling from workforce shortages and an onslaught of other unbalanced regulations.

“Creating new regulatory processes and imposing additional mandatory costs will act as a drag on the sector and upend productive employer–employee relations. We look forward to expressing our concerns with this proposal directly to the DOL and administration leaders as the process moves forward.”

-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 13 million men and women, contributes $2.91 trillion to the U.S. economy annually and accounts for 55% 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.

As manufacturers continue to reel from supply chain disruptions, the NAM is calling for a swift resolution to forestall a potentially devastating United Auto Workers strike.

What’s going on: The UAW is negotiating a new labor agreement with important automotive manufacturers, as the current contract expires Sept. 14.

Why it’s important: The automotive manufacturing industry in the U.S. is one of the strongest and most productive in the world, and it significantly supports the health of the U.S. economy.

• A strike of 143,000 UAW members against Detroit’s “Big Three” auto manufacturers could mean an economic loss of $5.617 billion after just 10 full days, according to a new report by Anderson Economic Group.
• Nationwide, every $1 spent in the transportation-equipment sector causes another $1.59 to be spent elsewhere—for a total economic impact of $2.59, according to NAM calculations using 2021 IMPLAN data.
• In 2022, the total value-added in motor vehicles and parts in the U.S. was $171.6 billion, according to the Bureau of Economic Analysis.

State-level impact: In 2019, a 42-day auto-worker strike at one of the Detroit manufacturers “sent the state of Michigan into a one-quarter recession” and resulted in an economic loss of $4.2 billion, according to reporting by The Detroit News.

• As of 2021, the latest year for which this data is available, Michigan’s total output from motor vehicles, bodies and trailers, and parts manufacturing was $37.5 billion, accounting for 37% of total manufacturing output in the state, according to the BEA.
• At the same time, Michigan had 175,745 full- and part-time employees in the sector, or 28.7% of all manufacturing employees in the state.
• Meanwhile, the total output of Illinois’ auto sector accounted for 19.3% of the state’s total manufacturing output, while employment came to 23.6% of the state’s manufacturing employees.

Undermining manufacturing in the U.S.: “Manufacturers in America, especially in the automotive sector, operate in an integrated supply chain, which means that small and medium-sized manufacturers around the country—in union and non-union shops—would endure the consequences of a stoppage. As we continue to emerge from the global pandemic and work to get our economy on a sustainable track, a strike would be devastating for working families across our country,” said NAM President and CEO Jay Timmons.

• “President Biden has prioritized strengthening manufacturing in America, but that will be quickly undermined if a strike occurs. The administration should be encouraging a swift resolution to avoid ripple effects throughout the broader manufacturing economy and in communities from coast to coast.”