The NAM is pushing back against scheduled and proposed tax changes that would limit tax deductions for interest on business loans and make it more difficult for manufacturers to invest in growth.
Why it matters: Debt financing is critical to the manufacturing industry because it allows businesses of all sizes to invest in equipment and facilities. These investments spur job growth and help manufacturers compete in a global marketplace. Reducing or limiting manufacturers’ ability to deduct interest will make borrowing more expensive, making it more difficult for manufacturers to support America’s economic recovery and invest in future growth.
The provisions: There are three proposed tax changes, including one that is set to take effect at the end of this year and two put forward by the House Ways and Means Committee that have been proposed to help pay for the Build Back Better agenda.
- A new EBIT standard: The 2017 tax reform law limited the business interest deduction to 30 percent of earnings before interest, tax, depreciation and amortization. Starting in 2022, the deduction will be further limited to 30 percent of earnings before interest and tax. Excluding depreciation and amortization would reduce the amount of interest businesses can deduct, making it more expensive for manufacturers to finance capital equipment purchases. The NAM is leading the Coalition for America’s Interest to oppose the change, and we’re championing a bipartisan bill that would preserve the EBITDA standard.
- New interest deductibility limitation: The House Ways and Means Committee’s budget reconciliation bill includes a new limitation on the deductibility of interest. The bill would impose a worldwide leverage test, disallowing interest deductions on top of the scheduled EBIT change. In fact, companies impacted by both this provision and the EBIT change would be forced to abide by whichever standard was the most limiting. This change would make the United States an outlier compared to other industrialized countries.
- New carry-forward restrictions: Manufacturers are currently allowed to carry forward unused interest deductions into future years, ensuring that they can deduct interest over time. The House bill would cap carry-forwards at five years, which could permanently deny some interest deductions and ultimately result in a net tax increase for many businesses.
Speaking out: All told, limiting interest deductibility makes it more expensive for manufacturers to invest in growth, which is why the NAM has vocally opposed these changes.
“These scheduled and proposed changes to interest deductibility would disproportionately impact companies in the manufacturing sector,” NAM Vice President, Tax and Domestic Economic Policy Chris Netram wrote in a letter to Congress. “Following tax reform’s passage in 2017, manufacturing capital spending grew by 4.5% and 5.7% in 2018 and 2019—but limiting the deductibility of interest would threaten the sector’s progress and harm manufacturers’ ability to invest for the future.”
Washington, D.C. – Ahead of the midterm elections, the National Association of Manufacturers released its policy roadmap, “Competing to Win,” a comprehensive blueprint featuring immediate solutions for bolstering manufacturers’ competitiveness. It is also a roadmap for policymakers on the laws and regulations needed to strengthen the manufacturing industry in the months and years ahead.
With the country facing rising prices, snarled supply chains and geopolitical turmoil, manufacturers are outlining an actionable competitiveness agenda that Americans across the political spectrum can support. “Competing to Win” includes the policies manufacturers in America will need in place to continue driving the country forward.
“‘Competing to Win’ offers a path for bringing our country together around policies, shared values and a unified purpose,” said NAM President and CEO Jay Timmons. “The NAM is putting forward a plan filled with ideas that policymakers could pursue immediately, including solutions to urgent problems, such as energy security, immigration reform, supply chain disruptions, the ongoing workforce shortage and more. Manufacturers have shown incredible resilience through difficult times, employing more workers now than before the pandemic, but continued resilience is not guaranteed without the policies that are critical to the state of manufacturing in America.”
The NAM and its members will leverage “Competing to Win” to shape policy debates ahead of the midterm elections, in the remainder of the 117th Congress and at the start of the 118th Congress—including in direct engagement with lawmakers, for grassroots activity, across traditional and digital media and through events in key states and districts as we did following the initial rollout of the roadmap in 2016.
The document focuses on 12 areas of action, and all policies are rooted in the values that have made America exceptional and keep manufacturing strong: free enterprise, competitiveness, individual liberty and equal opportunity.
Learn more about how manufacturers are leading and about the industry’s competitiveness agenda at nam.org/competing-to-win.
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 $2.77 trillion to the U.S. economy annually and accounts for 58% 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