Tax

Washington, D.C. – The federal regulatory burden is now costing small manufacturers $50,000 per employee per year, according to the topline findings of a forthcoming National Association of Manufacturers study on the macroeconomic impact of the onslaught of federal regulations. The total cost of federal regulations, estimated at more than $3 trillion dollars, outpaced the economic output of the entire manufacturing sector.

“The unbalanced federal regulations make it challenging to grow manufacturing in America by siphoning resources away from job creation and our communities,” said NAM President and CEO Jay Timmons. “The burden continues to grow year after year, undermining the bipartisan achievements from President Biden and Congress that have prioritized manufacturing—including the Bipartisan Infrastructure Law and the CHIPS and Science Act. It is chilling investment, curtailing our ability to hire new workers and suppressing wage growth, especially for small and medium-sized manufacturers. It is time for the Biden administration to take action to reverse course.”

Additional Key Facts: 

• The total cost of federal regulations in 2022 is an estimated $3.079 trillion (in 2023 dollars), an amount equal to 12% of U.S. GDP and larger than the manufacturing sector’s entire economic output ($2.91 trillion). The total annual cost of complying with federal regulations has risen by $465 billion since 2012, after adjusting for inflation.
• The annual cost burden for an average U.S. firm is $277,000, the equivalent of 19% of the average firm’s payroll expenses. A small manufacturer pays a burden of $50,100 per employee, meaning that a small firm with 20 employees bears around $1 million in annual compliance costs.
• For the manufacturing sector, the cost of federal regulations is roughly $350 billion, which equals to 12% of the sector’s value added to GDP. This is 26% higher than the inflation-adjusted cost of $277 billion borne by manufacturers in 2012.
• Surveyed manufacturers indicate that they could enhance their competitiveness if the costs of federal regulations were reduced; they would reallocate current compliance funds toward employee compensation and hiring, investment, research and development, sales and marketing, enhancing price competitiveness and improving return on investment.
• The regulatory burden on the manufacturing sector is larger than the economies of 29 American states.

To view the executive summary of the forthcoming study, click here.

Background:

The NAM and members of the Manufacturers for Sensible Regulations coalition have been leading voices on the negative impact of unbalanced regulations on manufacturers. According to the NAM’s Q2 2023 Manufacturers’ Outlook Survey, more than 63% of manufacturers report spending more than 2,000 hours per year complying with federal regulations, while more than 17% of manufacturers report spending more than 10,000 hours annually.

The NAM’s Q3 2023 Manufacturers’ Outlook 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. Additionally, 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.

About the Study:

The NAM commissioned this analysis by economists Nicole V. Crain* and W. Mark Crain, who continued a three-decade effort to analyze the total cost of federal regulations, and how the burden is distributed across sectors and firm sizes. Two approaches are employed. The first is a survey of NAM members, conducted from July 20 to Sept. 1, 2023, to collect information about operational expenses dedicated to regulatory compliance, extrapolating these findings to the sector. The second approach derives estimates based on an aggregation of federal agency cost estimates, combined with regression analysis that measures the impact on overall economic output. The cost allocations by sector and firm size rely on data from the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Census Bureau and the Internal Revenue Service.

*The views expressed in this study are those of the authors and do not reflect the official policy or position of the National Defense University, the Department of Defense or the U.S. government.

-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.

The NAM is the voice of the manufacturing industry in the United States, speaking out on issues that matter to the men and women who make things in America. As times change, new issues arise, and to stay up to date with the needs of its members, the NAM updates its policy position documents accordingly.

That process—now underway for 2023—takes place with our member companies every four years under the guidance of the NAM Board of Directors. Here’s what you need to know.

The timeline: Proposed changes have been distributed from the NAM policy teams to the respective policy committees, and members have until Oct. 31 to provide their feedback.

• Shortly after Oct. 31, NAM policy committees will convene to consider the proposed changes and any subsequent suggested edits. If needed, working groups will be organized to consider new or revised language on specific issues.

The result: The NAM policy committees will recommend new policy language to the NAM Board based on their engagement with member companies.

• At the February 2024 board meeting, the NAM Board will finalize and approve the policy positions that will guide the NAM for the next four years.

How to participate: Member companies can choose which policy committees they serve on, so as the policy update process commences, companies should contact their membership directors to ensure they are aware of the various policies and committees that may be most important to their own businesses.

The last word: “Our member companies are at the center of this policy update process,” said NAM Managing Vice President of Policy Chris Netram. “The NAM fights every day for a policy agenda that supports manufacturing growth, and this is a critical opportunity for manufacturers across the country to have their say on the issues that matter to them.”

The economic impact of allowing a stricter interest deductibility limitation to remain in effect could be devastating, according to a new EY analysis prepared on behalf of the NAM.

What’s going on: Failure to reverse the stricter limitation that went into effect in 2022 could result in the following losses in the U.S., according to the study:

• 867,000 jobs
• $58 billion in employee compensation
• $108 billion in gross domestic product

More costly every year: Those figures have roughly doubled since the 2022 EY analysis released last year.

• Last year, EY estimated that leaving the stricter limitation in place would result in 467,000 lost jobs, $23.4 billion in lost employee pay and $43.8 billion in lost GDP.

The background: Prior to 2022, companies could deduct interest of up to 30% of their earnings before interest, tax, depreciation and amortization (EBITDA).

• However, since 2022, the deduction has been limited to 30% of earnings before interest and tax (EBIT), a significant change that disproportionately affects manufacturers, given their capital-intensive investments.

What can be done: “A stricter interest expense limitation restricts manufacturers’ ability to invest in new equipment and create jobs,” said NAM Managing Vice President of Policy Chris Netram.

• “Even more, the study finds that manufacturers and related industries bear 77% of the burden of this policy. Congress must act by year’s end to restore a pro-growth interest deductibility standard and allow manufacturers to continue to invest for the future.”

NAM in the news: POLITICO Pro’s Morning Tax newsletter (subscription) covered the study’s release.

Further reading: Visit the NAM’s interest deductibility page to learn more about this issue and how the NAM is taking action.

Washington, D.C. – The National Association of Manufacturers released a new analysis on the impact to the U.S. economy of Congress’ failure to reverse the stricter interest expense limitation that took effect in January 2022.

The jobs impact of the stricter limitation has nearly doubled over the past year given congressional inaction to ensure a pro-growth interest deductibility standard as interest rates have continued to rise. The data show that limiting manufacturers’ ability to deduct interest on debt-financed investments, over the long run, could cost the U.S. economy up to:

• 867,000 jobs;
• $58 billion of employee compensation; and
• $108 billion in GDP.

“A stricter interest expense limitation restricts manufacturers’ ability to invest in new equipment and create jobs. This analysis clearly shows that failing to reverse this damaging change will cut close to 900,000 jobs and billions of dollars of employee pay and harm economic growth. Even more, the study finds that manufacturers and related industries bear 77% of the burden of this policy,” said NAM Managing Vice President of Policy Chris Netram. “Congress must act by year’s end to restore a pro-growth interest deductibility standard and allow manufacturers to continue to invest for the future.”

Background:

Prior to 2022, the interest expense limitation was calculated based on a company’s earnings before interest, tax, depreciation and amortization (EBITDA). Last year, a stricter limitation based on a company’s earnings before interest and tax (EBIT) took effect. By excluding depreciation and amortization from the calculation, the stricter limitation increases the tax burden on manufacturers that make investments in long-lived capital equipment.

To view the full analysis 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 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.

Washington, D.C. – The Manufacturing Institute, the workforce development and education affiliate of the National Association of Manufacturers, in partnership with Cognizant, released a study that examined the different approaches manufacturers take in making investment decisions.

“As manufacturers continue to evolve, the nature of work and skills must adapt to meet the needs of the changing industry. Manufacturing leaders must prioritize investments to best position their companies in a competitive marketplace and set themselves up for success over the long term,” said NAM Chief Economic and Director for the Center of Manufacturing Research Chad Moutray. “Three investment priorities emerged across manufacturer size and industry: increasing throughput and lowering costs where possible, creating new opportunities for growth, and building a stronger, more resilient workforce. Nearly all the companies we interviewed emphasized the importance of investing in their workforce.”

The study consisted of an online survey and in-depth interviews of manufacturing leaders from June to August 2023.

The following are highlights of the report:

• When asked about their top priorities for current dollars, nearly 74% of manufacturers reported building a robust and trained workforce as a key area for investment, which fits in with the larger macroeconomic conditions of the tight labor market and shortage of available workers.
• When business leaders were asked how they would spend a marginal $1 million, 61.5% would invest in new equipment. These findings point toward a desire to make smart investments that will transform operations and the production process, while also ensuring that the workforce can adapt to such changes.
• Additional areas of focus for marginal dollar investment included investing in improved processes and operations (60.2%), optimizing existing equipment (53.4%), investing in new equipment (51.7%), investing in new technologies (46.6%) and research and development (44.9%).
• When considering their future growth strategies, manufacturers identified a stronger domestic economy for growing sales (69.5%), increased efficiencies in the production process (67.8%) and maintaining a robust and trained workforce (67.0%) as the most significant factors in contributing to expansion.

Key Takeaway:

From survey data and interviews, three investment priorities emerged across manufacturer size and industry:

• Increasing throughput and lowering costs where possible
• Creating new opportunities for growth
• Building a stronger, more resilient workforce

-The MI-

The Manufacturing Institute builds a resilient manufacturing workforce prepared for the challenges and opportunities of the future. Through implementing groundbreaking programs, convening industry leaders and conducting innovative research, the MI furthers individual opportunity, community prosperity and a more competitive manufacturing industry. As the 501(c)3 nonprofit workforce development and education affiliate of the National Association of Manufacturers, the MI is a trusted adviser to manufacturers, equipping them with solutions to address the toughest workforce issues.

 733 10th St. NW, Suite 700 • Washington, DC 20001 • (202) 637-3000

Permanent restoration of R&D expensing is a top priority for manufacturers in Minnesota and the U.S. in general. That’s why Rep. Pete Stauber (R-MN) plans to sign onto the American Innovation and R&D Competitiveness Act as a cosponsor, he recently told the NAM.

What’s going on: Rep. Stauber discussed the importance of competitive R&D tax policy, along with the regulatory onslaught targeting manufacturers and the need for permitting reform, during a recent NAM-organized facility tour of Clow Stamping Co. in Merrifield, Minnesota.

• “Full expensing for R&D costs in the year in which they are incurred is essential for innovation and competition,” Rep. Stauber told the group, which included Pequot Tool & Manufacturing CEO Karlo Goerges in addition to NAM representatives and Clow Stamping leadership. “It’s imperative that it be reinstated as soon as possible.”
• The American Innovation and R&D Competitiveness Act would restore immediate R&D expensing permanently for small businesses.
• “Full R&D expensing was instrumental in our growth until the law changed last year,” said Clow Stamping owner Reg Clow. “It’s definitely having an impact on us. Our expenses have gone way up.”

Workforce woes: Clow is nearing the end of a $20 million facility expansion that will add 107,000 square feet of floor space and at least 60 jobs—but finding enough workers to fill those jobs won’t be easy.

• By implementing automation in its shipping and receiving departments, the company will be able to both increase its shipping output without additional workers and channel its current hiring efforts toward filling open positions with the production departments, Clow said.
• This is a short-term solution, however, and manufacturers like Clow Stamping need policymakers’ help to ensure the industry has enough skilled workers for the decades to come.
• During the facility visit, the group discussed the importance of educating younger generations about the many opportunities available in manufacturing, via initiatives like Creators Wanted. This award-winning perception campaign undertaken by the NAM and its 501(c)3 workforce development and education affiliate, the Manufacturing Institute, aims to recruit 600,000 new manufacturing workers by 2025.

The last word: “Manufacturers account for more than 55% of all private-sector R&D spending in the United States,” said NAM Managing Vice President of Policy Chris Netram.

• “Policies that encourage this innovation will allow the industry to continue to drive our economy forward. The NAM thanks Rep. Stauber for his support of the American Innovation and R&D Competitiveness Act and calls on Congress to swiftly pass this bill.”

Washington, D.C. – Following the U.S. Supreme Court’s denial of cert to reconsider the D.C. Circuit’s decision affirming the validity of Optional Practical Training extension for STEM graduates, a program that expands access to hundreds of thousands of skilled workers for manufacturers and other American businesses, National Association of Manufacturers Chief Legal Officer Linda Kelly released the following statement:

“Today’s decision ends a years-long legal battle, and the NAM Legal Center is proud to have fought to preserve the STEM OPT program, which will aid manufacturers in filling critical, skilled positions. Thanks to the NAM Legal Center’s efforts, the STEM OPT program will remain a vital talent pipeline, providing opportunities for those graduates in science, technology, engineering and math to enhance their education through hands-on work.

Background: In 2018, after an anti-immigration activist group brought a lawsuit against the Department of Homeland Security seeking to invalidate the entire STEM OPT program, the NAM and two other business groups moved to intervene as defendants in the case. The U.S. District Court for the District of Columbia ruled in the NAM’s favor in 2020, holding that DHS acted within its statutory authority and in accordance with the Administrative Procedure Act by continuing the STEM OPT program, a decision the D.C. Circuit affirmed in 2022. Today’s decision by the Supreme Court not to hear the case maintains the Circuit Court’s ruling and preserves the STEM OPT program.

-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.

Washington, D.C. – The National Association of Manufacturers announced the promotion of Charles Crain as its new vice president of domestic policy. Crain previously served as the NAM’s senior director of tax and domestic economic policy, where he led successful policy efforts on a range of tax and corporate governance issues.

In this new role, Crain leads the association’s focus on a range of priorities, including advancing competitive tax and corporate finance policies, pushing back against the regulatory onslaught facing the industry and advocating policies that strengthen manufacturers’ ability to develop lifesaving treatments. He will also bring together the expertise of the NAM’s Manufacturing Leadership Council and Innovation Research Interchange to drive the debate around the role of AI and technology in the future of manufacturing.

In addition to Crain, the lead policy experts for the association include Vice President of Domestic Policy Brandon Farris, who leads the energy, sustainability, labor and infrastructure policy portfolio; Vice President of International Policy Ken Monahan; and Chief Economist Chad Moutray. In July, Managing Vice President of Policy Chris Netram took the helm of the policy division.

“The NAM’s best-in-class policy team is made stronger with the elevation of Charles Crain. Charles has a track record of success that has benefitted manufacturers, and they will benefit even more from his leadership in this new role. As technology continues to play an increasingly critical role in manufacturing, Charles will be a leading voice in ensuring policymakers foster an environment where our industry can stay globally competitive,” said NAM President and CEO Jay Timmons. “Moreover, the integration of policy, government relations, communications, public affairs and brand strategy within the NAM ensures that manufacturers will be a driving force inside and outside the Beltway on every issue important to the industry.”

“Charles’ new role ensures that manufacturers will have an experienced advocate who can move the needle in debates on tax, health care, corporate finance, regulatory reform and technology policy. These critical issues are key to manufacturing competitiveness,” said Netram.

-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.

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.