Policy and Legal

The NAM is calling for Congress to temporarily extend a COVID-19 tax relief provision that would support manufacturers affected by the pandemic.

The background: Currently, the maximum deduction for interest on business loans is limited to 30% of earnings before interest, tax, depreciation and amortization (EBITDA). When COVID-19 hit, however, many businesses saw their earnings fall, which also caused their allowable business interest deduction to decrease, even as firms were forced to take out loans to stay afloat. To support these businesses, Congress increased the allowable business interest deduction from 30% to 50% of EBITDA in the bipartisan CARES Act.

The problem: The legislation only covered tax years 2019 and 2020, which means it expires in just a few weeks. At that point, the allowable deduction will fall again to 30% of EBITDA, making it more expensive for struggling companies to stay afloat. The NAM is calling on Congress to extend the provision for one more year.

Why it matters: In a capital-intensive industry like manufacturing, businesses use debt to finance important investments in critical technology.

• With the pandemic causing earnings to fall in some sectors, many manufacturers are holding a larger ratio of debt-to-earnings, making their investments more expensive.

• An economic analysis by Ernst & Young found that a one-year extension of the current 50% rate could help create up to 85,000 jobs and add billions of dollars in GDP.

The word from the NAM: “Congress intended to offer a lifeline to businesses that are struggling in the midst of COVID-19—and although we can see a light at the end of the tunnel, the pandemic still rages on,” said NAM Vice President of Tax and Domestic Economic Policy Chris Netram. “Manufacturers are calling on Congress to extend this provision for another year so that it does what it was meant to do: support American workers and keep America in business.”