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Congress must protect small, family-owned and pass-through manufacturers from devastating tax increases scheduled for the end of 2025, the NAM told the Senate Finance Committee this week as part of its ongoing “Manufacturing Wins” campaign.

Fair and encouraging: “In November 2023 … Chairman [Ron] Wyden said that ‘Americans deserve a tax system that can be both fair and encourage success.’ Manufacturers agree,” NAM Vice President of Domestic Policy Charles Crain told legislators ahead of a Thursday hearing on 2025 tax policy.

• “[S]mall manufacturers experienced extraordinary growth as a result of the Tax Cuts and Jobs Act’s reforms that make the tax system more fair for pass-through businesses, by enacting a 20% pass-through deduction and reducing individual income tax rates,” Crain said.
• But, he continued, this growth is in jeopardy—because the pass-through deduction, along with several other pro-manufacturing provisions, is scheduled to expire at the end of 2025.

What it would mean: The overwhelming majority—96%—of businesses in the U.S. are organized as pass-through entities. This means their profits are “passed through” to company owners, who then pay taxes on the business’s income on their individual tax returns. In manufacturing, pass-throughs are generally small, family-owned firms.

• In a recent NAM survey, 93% of pass-through manufacturers said they would be less able to hire or invest in their businesses if the 20% deduction expires.

Lost and at risk: But there’s more. Also set to expire at the end of next year are the lower individual income tax rates and tax reform’s changes to the estate tax.

• That’s on top of three vital tax measures that have been allowed to lapse already: immediate R&D expensing, a pro-growth interest deductibility standard and 100% accelerated depreciation. 

What must be done: “To protect pass-through manufacturers from devastating tax increases, Congress should make permanent the [pass-through] deduction and prevent the individual income rates from increasing at the end of 2025,” Crain continued.

• “Similarly, Congress should protect family-owned pass-throughs from scheduled changes to the estate tax that could require liquidation of business-critical assets when a business owner dies.”