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NAM to Congress: Reverse Course on Harmful Tax Changes

Recent tax law changes that increase the costs of research, machinery purchases and key business investments will harm manufacturers “at a time when 62% of manufacturing leaders already expect a recession in 2023,” the NAM told congressional leaders Monday.

What’s going on: Beginning in 2022, businesses that had for decades been allowed to immediately deduct research and development expenses had to begin amortizing these costs over years, making innovation more expensive.

Why it’s important: The change creates a competitive disadvantage for manufacturers in the U.S., as “China, which has made no secret of its ambition to become the world leader in advanced manufacturing, currently provides a 200% deduction for R&D expenses for manufacturers,” NAM Senior Vice President of Policy and Government Relations Aric Newhouse told the Senate Finance Committee and the House Ways and Means Committee.

What can be done: Congress can still reverse course and avoid harming manufacturers, Newhouse said. Here’s what lawmakers should do:

  • Reverse the R&D amortization provision: Policymakers should allow manufacturers to go back to being able to deduct immediately 100% of their R&D expenses in the same year in which they are incurred.
  • Protect interest deductibility: Congress must reverse the new, stricter limit on interest deductibility (the earnings before interest and tax, or EBIT, standard) and return to the “standard in place prior to 2022, which was based on earnings before interest, tax, depreciation and amortization.”
  • Return to full expensing: Lawmakers should go back to allowing businesses to take 100% deductions for equipment and machinery purchases in the tax year of purchase.

The last word: By making these changes, Newhouse said, “Congress can help ensure that manufacturers, especially small manufacturers, can continue to invest in their operations, their workers and America’s future.”

NAM in the news: Bloomberg (subscription) and Politico’s Morning Tax newsletter covered the NAM’s advocacy for these provisions.

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