Policy and Legal

As part of its “Manufacturing Wins” tax campaign, the NAM’s small and medium-sized manufacturers are drawing lawmakers’ attention to R&D amortization, an uncompetitive tax policy that’s killing jobs and dragging down the world’s most innovative economy.

The problem: “Allowing companies like Sukup Manufacturing to immediately expense R&D investments had been part of the tax code for more than 70 years,” explained Steve Sukup, president and CEO of the Sheffield, Iowa–based company. “But since 2022, we have had to amortize our R&D expenses over five years.”

• “This affects manufacturers everywhere and has a dramatic impact on the U.S. economy, as the private sector accounts for more than 75% of total R&D spending—with small businesses accounting for approximately $90 billion of all private-sector R&D investments.”
• Another heavily impacted manufacturer is Husco of Waukesha, Wisconsin. “In 2024, we have $20 million less liquidity than we would have under the old R&D expensing rules,” said Husco President and CEO Austin Ramirez. “That $20 million represents almost our entire capital budget for 2024.”

Threatening jobs: “Limiting R&D doesn’t just limit innovation—it also has a direct impact on people’s jobs here,” said Tom Tredway, president of Erie Molded Packaging in Pennsylvania. “And these are quality, high-paying jobs—but they are at risk if immediate R&D expensing isn’t restored.”

• “Bringing a new medical device to market is a multiyear process, necessitating significant investments in R&D,” explained Chuck Wetherington, president of BTE Technologies in Hanover, Maryland. “Being required to amortize our R&D expenses has forced us to staff our technical team at a reduced level, slowing down the development of new products.”

Handing a win to China: “China allows a ‘super deduction’ for manufacturing R&D equal to 200% of research costs. That is what we are up against,” said Lisa Winton, who co-founded Winton Machine Company in Suwanee, Georgia. “Meanwhile, Belgium is the only other developed nation with an amortization requirement like the United States.”

• “When you look at the generosity of foreign support, especially China’s, versus the United States, it’s so lopsided,” said Daryl Bouwkamp, who serves as Vermeer Corporation’s senior director of international business development and government affairs. “China is trying to drive behavior toward R&D—and that’s something we’re lacking.”
• “Suddenly, China started manufacturing bagel baskets and shipping them to New York City for cheaper than I could get the steel,” recalled Drew Greenblatt, president and owner of Marlin Steel Wire Products. “We realized we couldn’t thrive in a commodities market. … We [need] to be able to say to buyers, ‘You must buy from the American innovative company because we’re coming up with such slick ideas that our product blows the competition away.’”

Innovation at risk: “[Now is the time] we most need to make investments in innovation, both around the technologies that we provide in our products enabling the United States’ economic growth and success [and] the technologies we use to produce the products that we make,” said Karl Hutter, CEO of Click Bond in Carson City, Nevada.

• Patricia Miller of M4 Factory in Woodstock, Illinois, highlighted that manufacturers are key to meeting the world’s most intractable challenges: “We need to keep those [companies] that are driving the future of innovation and manufacturing in the U.S. economically viable and competitive.”

The last word: “Congress not allowing manufacturers to immediately expense R&D expenses directly translates to fewer quality jobs in the manufacturing sector while our foreign competitors are implementing vastly more beneficial R&D benefits,” Tredway concluded.

The NAM recently talked to Sen. Todd Young (R-IN) about the importance of reinstating immediate expensing for research-and-development expenditures. Here’s the full interview:

NAM: Sen. Young, Congress is facing a “Tax Armageddon” next year, as crucial provisions from 2017’s Tax Cuts and Jobs Act are set to expire. As a member of the Senate Finance Committee, what is your focus moving into next year’s debate?

Sen. Young: The Tax Cuts and Jobs Act was a great success—millions of Americans, especially those in the middle class—saw their taxes go down. Corporate tax receipts went up. We stemmed the tide of corporate inversions, and many companies chose to return their operations and tax bases to the United States. If Congress does not act next year to extend provisions of the TCJA, we will undo all of these victories and inflict long-lasting damage on our economy. As we prepare for next year, I am focused on evaluating how best we can build upon our TCJA successes and continue to adopt pro-growth, fiscally responsible tax policy that helps hardworking Americans thrive.

NAM: As you know, for nearly 70 years, manufacturers in the U.S. were able to fully deduct their R&D expenses in the year incurred. Beginning in 2022, however, manufacturers were forced to spread their deductions over several years, greatly harming our ability to grow and compete. What is Congress doing to restore immediate R&D expensing?

Sen. Young: For several years now, I have advocated for the American Innovation and Jobs Act (S. 866), my bill with Sen. Maggie Hassan (D-NH) that would restore full and immediate expensing of R&D expenditures. We first introduced the bill back in 2020 well before the provision expired, and I am disappointed that we are now reaching the end of 2024—nearly three years after the law shifted to amortization of R&D investments—and Congress has yet to pass our bill to fix this crucial issue. As our global competitors, like China, are expanding their R&D incentives, we simply cannot allow our nation and our economy to be left behind. Congress must work to restore our R&D incentives as soon as possible, and this will be one of my top priorities heading into next year’s tax negotiations.

NAM: As a senator who was there during the Tax Cuts and Jobs Act, you know how impactful the legislation was for manufacturers to be able to compete on a global level. As we get closer to next year, what are you hearing from stakeholders on the need for pro-growth tax policy so American businesses can engage and grow around the world?

Sen. Young: At the risk of oversimplifying the issue, it really comes down to competitiveness. A lot of the work I have done in the tax space as well as in other areas is focused on ensuring that America’s position as a global leader remains strong. Without growth, our economy suffers and our ability to remain internationally competitive is diminished. This is a massive national security risk. So, as I look ahead to what next year may hold in the tax arena, I am focused on pro-growth tax policy. We need to be thinking creatively about ways we can add value to our economy and, in turn, ensure Americans are better off.

In different industries this takes on different forms; however, one common thread is the need for R&D. To grow and develop new products, businesses have to put significant amounts of capital into R&D costs, both domestically and internationally. That is why one of my core areas of focus continues to be restoring full and immediate expensing of R&D costs. It is vital for the health of our economy that we take this action, which allows safer and more innovative products to be brought to the marketplace; increases the number of [well]-paying, high-skilled jobs; and secures U.S. interests abroad by ensuring we remain globally competitive.

NAM: Thank you, Sen. Young. What else can NAM members do to stay engaged and be a resource for you going into next year?

Sen. Young: I have always appreciated the NAM’s partnership and advocacy as we work together on these important issues. I would encourage NAM members to continue sharing stories with their elected federal officials of the importance of these tax incentives, like R&D, that enable the creation of high-quality jobs, promote our national competitiveness and strengthen our economy. Your voice matters.

Washington, D.C. – As a strike of 33,000 Boeing workers continued into its 20th day, National Association of Manufacturers President and CEO Jay Timmons released the following statement:

“The potential economic impact of this strike cannot be overstated. The aerospace industry directly supports more than 500,000 manufacturing workers in America, and the ongoing strike at Boeing’s Puget Sound facilities is poised to have significant economic consequences, not just in the Pacific Northwest but across the entire United States.”

The ongoing strike of 33,000 Boeing workers could total a regional economic loss of more than $1.65 billion after just 20 days, according to NAM calculations.

Timmons added, “This disruption will resonate far beyond Washington state. The aerospace supply chain and manufacturers in the U.S. are interconnected deeply, and a continued halt in production will have devastating effects on our country.”

-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 $2.87 trillion to the U.S. economy annually and accounts for 53% 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 recently talked to Rep. Ron Estes (R-KA), chair of the U.S. Innovation Tax Team, to learn what he and his colleagues are doing to fight for the return of immediate research-and-development expensing. Here’s the full interview:

NAM: Rep. Estes, Congress is facing a “Tax Armageddon” next year, as crucial provisions from 2017’s Tax Cuts and Jobs Act are set to expire. As a member of the Ways and Means Committee, what is your focus moving into next year’s debate?

Rep. Estes: The Tax Cuts and Jobs Act did so much to encourage economic growth and make the United States competitive globally. Today, about half of the members serving in Congress weren’t in office in 2017 when we passed this landmark legislation, so there’s a lot of educating that’s been happening, not just for the general public but for our members as well. Ways and Means Republicans are taking this opportunity to examine what worked and ways to improve and expand the legislation. Ways and Means Chairman Jason Smith (R-MO) established 10 tax teams to address various parts of the bill, and I’ve been leading the U.S Innovation Tax Team.

NAM: As you well know, for nearly 70 years, manufacturers in the U.S. were able to fully deduct their R&D expenses in the year incurred. Beginning in 2022, however, manufacturers were forced to spread their deductions over several years, greatly harming our ability to grow and compete. What is Congress doing to restore immediate R&D expensing?

Rep. Estes: I’ve introduced legislation—the American Innovation and R&D Competitiveness Act—to address this issue. It’s bipartisan legislation that is supported by 220 colleagues, nearly evenly divided between Republicans and Democrats. Those provisions were also included in the House-passed Tax Relief for American Families and Workers Act, which would have been a welcome fix. However, election-year politics has stalled that bill in the Senate. But manufacturers and innovators need action on immediate R&D expensing now, and it’s something the Senate should still address before the next Congress begins in January.

NAM: Your U.S. Innovation Tax Team has been very busy this year, as you’ve held several roundtables and been receiving feedback focused on the importance of U.S. manufacturers having a chance to compete around the globe. As we get closer to next year, what is your tax team hearing from stakeholders on the need for American businesses to engage and grow around the world?

Rep. Estes: The U.S. Innovation Tax Team has hosted roundtables and listening sessions with innovators and manufacturers across the country. Their message has been consistent and clear: we need a stable tax code that encourages innovation through R&D immediate expensing, continues good policies like FDII [the foreign-derived intangible income deduction] and discourages foreign extraterritorial taxes that are out to pilfer from American innovators. A manufacturer in rural Kansas told me about how the change in immediate R&D expensing has changed their plans for expansion. This is a major employer in a small town, so the impact isn’t just about the business, but it’s also about the jobs that are impacted when R&D is stifled. At the same time, China is offering a 200% super deduction and is working to expand R&D in their country. We can’t cede our dominance in manufacturing, research and development.

NAM: Thank you, congressman. What else can NAM members do to stay engaged and be a resource for you going into next year?

Rep. Estes: The best thing for NAM members to do is to continue talking about the benefits of the Tax Cuts and Jobs Act and the importance of R&D expensing for manufacturers and workers. Unfortunately, there’s a lot of misinformation about the impact of the 2017 tax law, but even the New York Times admitted in 2019 that the Tax Cuts and Jobs Act benefitted most Americans, saying in their headline, “Face It: You (Probably) Got a Tax Cut,” and going on to say, “Studies consistently find that the 2017 law cut taxes for most Americans. Most of them don’t buy it.” Americans, small businesses, innovators and manufacturers need us to extend and expand the 2017 tax law to encourage the kind of economic growth we experienced just several years ago.

For more than two years, manufacturers have not been able to immediately deduct their R&D expenses—and it’s taken a toll, particularly on small businesses.

What’s going on: For more than 70 years, the U.S. tax code allowed manufacturers to immediately deduct their R&D expenditures. But since the expiration of this key provision in 2022, manufacturers have been required to amortize their R&D costs over a period of years.

Why it’s important: As a direct result of the expiration, manufacturers’ tax bills have increased, according to a new NAM tax explainer released as part of the NAM’s “Manufacturing Wins ” campaign. This means manufacturers are now less able to conduct groundbreaking research and support well-paying R&D jobs.

Uneven playing field: The U.S. is now one of just two developed nations that requires the amortization of R&D expenses.

• The policy makes the U.S. less competitive against China, which offers companies a 200% “super deduction” for R&D costs.
• In 2022, the first full year after the expiration of immediate R&D expensing, the European Union’s R&D growth surpassed that of the U.S. for the first time in nearly a decade—and China’s R&D growth was triple that of the U.S.

What should be done: The NAM is calling on Congress to restore immediate R&D expensing, along with other pro-growth tax provisions.

The last word: “It is imperative that the U.S. tax code support job-creating, life-changing R&D,” said NAM Vice President of Domestic Policy Charles Crain. “Congress must act to bolster manufacturing innovation and American competitiveness by reinstating immediate R&D expensing.”

Washington, D.C. – Following comments from President Biden that he will not intervene in the strike at East and Gulf Coast ports, National Association of Manufacturers President and CEO Jay Timmons released the following statement:

“Manufacturers call on President Biden to intervene by invoking the Taft-Hartley Act, which will force ports to resume operations while negotiations continue.

“There will be dire economic consequences on the manufacturing supply chain if a strike occurs for even a brief period. NAM estimates show a strike at the East and Gulf Coast ports would jeopardize $2.1 billion in trade daily, and the total economic damage could reduce GDP by as much as $5 billion per day.

“The president can protect manufacturers and consumers by exercising his authority, and we hope he will act quickly.”

Background:

NAM estimates find that $2.1 billion worth of trade would be at risk every day, and additional estimates have indicated that a strike would reduce GDP by up to $5 billion per day, only some of which could be recovered as goods are rerouted or after a shutdown ends.

Major Commodities Moving Through East and Gulf Coast Ports

• Imports
  • 77.6% of coffee and tea
  • 77.2% of beverages and spirits
  • 58.5% of medical/surgical instruments
• Exports
  • 62.1% of fertilizers
  • 76.3% of vehicles
  • 78.5% of wood pulp used in Europe for heat, diapers, etc.
  • 62.5% of medical/surgical instruments

-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 $2.87 trillion to the U.S. economy annually and accounts for 53% 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.

Drug price controls will “chill” critical innovation in pharmaceutical manufacturing and do nothing to address the underlying causes of high medication costs, Johnson & Johnson leaders said recently.

What’s going on: J&J Chairman and CEO Joaquin Duato and Executive Vice President and Chief Financial Officer Joseph Wolk told Bloomberg TV earlier this month that the pharmaceutical price controls mandated by the 2022 Inflation Reduction Act do a disservice to patients everywhere.

• “[T]he Inflation Reduction Act … is something that is misguided, and it’s going to chill innovation,” Duato told Bloomberg’s David Gura earlier this month. “When you chill innovation on investment in [research and development], then you have [fewer] cures.”
• The IRA gave the federal government authority to set prices for certain prescription medications in Medicare. In August, the Biden administration released the first 10 Medicare prescription drugs subject to those price controls, which go into effect in 2026.
• “I’d like to see a much more fact-based dialogue around the topic of drug pricing,” Wolk added. “About six years ago, Johnson & Johnson … was paying about 25% in discounts and rebates off [the] list price [of medications]. Today, that [figure is] 60%, yet the patients aren’t receiving the benefit of those discounts.”

The background: Pharmacy benefit managers are supposed to pass the manufacturer discounts they receive on to health plans and patients—but instead, they frequently pocket the discounts, the NAM has told Congress on several occasions.

• That’s one of several problematic business practices Congress must end by enacting comprehensive PBM reform, the NAM has said.
• Such legislation would do far more to benefit consumers than capping drug prices.

Cause and effect: The result of price controls will be fewer breakthrough cures and treatments for patients suffering from various illnesses, J&J told Bloomberg TV.

• “The number of medicines that will be there will be [lower], just because [fewer] investors would be putting money into developing new medicines,” Duato continued. “It’s going to be less attractive for investors to put money there.”
• And as Wolk said in another Bloomberg segment: “Investing in R&D, prioritizing R&D years in advance for [a drug] that may happen 10 years down the road is critically important.”

What should be done: If Congress truly wants to help patients with the cost of medications, it must focus on “the middlemen who are really driving up prices: pharmacy benefit managers,” NAM President and CEO Jay Timmons said recently.

As part of its “Manufacturing Wins” campaign to preserve pro-manufacturing tax provisions, the NAM hosted a roundtable this week with Reps. Carol Miller (R-WV) and David Kustoff (R-TN)—respectively the chair and a member of the Ways and Means Committee Supply Chain Tax Team.

Preparing for 2025: The Supply Chain Tax Team has jurisdiction over the corporate income tax rate. Tax reform reduced the corporate rate to 21%, spurring the creation of thousands of new manufacturing jobs—and the NAM is working with Congress to ensure the U.S. maintains a competitive corporate rate as policymakers debate next year’s “tax Armageddon.” 

Understanding the benefits: Rep. Miller emphasized that the dollars saved due to tax reform’s lower corporate rate have supported job creation, higher wages and the flourishing of local communities.

• As a business owner herself, she said she believes it’s important for members of Congress in charge of tax policy to understand the risks businesses take, the communities they support and the certainty they need to be successful.

Measuring the impact: Rep. Kustoff emphasized the importance of real-world data on the benefits of the lower corporate tax rate—from the number of jobs created to the work businesses have done to provide their employees with bonuses and higher wages.

• According to Rep. Kustoff, real-world metrics are important for educating policymakers about the need for action, as crucial, pro-manufacturing tax provisions are set to expire at the end of 2025.

Recognizing the ripples: The discussion also touched on the wider impact of tax increases on global supply chains and the broader U.S. economy.

• Participants noted that a higher corporate income tax rate’s ripple effects would hurt companies throughout the economy—even when those companies are pass-throughs and not explicitly affected by the corporate income tax rate.
• That’s because these small businesses often sell to and partner with larger corporations that would have less capital available under a higher corporate rate.

Our take: “Prior to 2017 tax reform, the U.S. had the highest corporate tax rate among the more than three dozen countries in the Organisation for Economic Cooperation and Development and the third highest in the entire world,” said NAM Vice President of Economic Policy Charles Crain.

• “That put manufacturers in America at an alarming disadvantage. A competitive tax rate helps business compete in the global economy, leads to job creation, investments and purchases of new equipment and allows manufacturers to give back to their communities.”
• “If Congress were to raise the corporate rate, it would force America to take a step back on the global stage—at a time when other countries around the world are implementing more competitive tax agendas.”

The NAM this week advocated the passage of two pieces of manufacturing-critical legislation, successfully driving the agenda of a Wednesday House Energy and Commerce Committee markup.

What’s going on: The committee—with the NAM’s strong support—approved two bills that address longstanding manufacturing priorities:

• A congressional resolution disapproving of the Environmental Protection Agency’s harmful PM2.5 rule
• A bill instituting important pharmacy benefit manager reforms

Reversing an unworkable PM2.5 standard: The EPA announced a new, more restrictive particulate matter standard in February, reducing allowable levels from 12 micrograms per cubic meter of air to 9 micrograms—despite a standard of 9 being “essentially background levels in some of the country,” as the NAM has pointed out.

• “Manufacturers have sharply reduced particulate matter emissions, or PM2.5; as a result, industry in the United States has some of the cleanest and most efficient operations in the world,” NAM Vice President of Domestic Policy Chris Phalen told the committee.
• “Now, the vast majority of emissions are from sources well outside of our control, with fires, dirt roads and other nonpoint sources accounting for 84% of PM2.5 emissions,” Phalen continued. “[T]he EPA’s rule will make it more difficult for states to issue permits for the construction of new facilities or expansions of existing factories.”
• The committee’s PM2.5 resolution, offered under the Congressional Review Act, seeks to overturn the EPA’s unworkable standard.

Reforming PBMs: PBMs are unregulated middlemen whose business practices drive up health care costs for manufacturers and manufacturing workers.

• “By applying upward pressure to list prices that dictate what patients pay at the pharmacy counter, pocketing manufacturer rebates and failing to provide an appropriate level of transparency about their business practices, PBMs increase health care costs at the expense of all patients in America,” NAM Vice President of Domestic Policy Charles Crain said.
• Provisions in the NAM-supported Telehealth Modernization Act would increase transparency into PBMs’ business practices and delink their compensation from medicines’ list prices.

The last word: “Manufacturers commend the Energy and Commerce Committee for approving these important bills, which will reduce costs and enhance growth at manufacturers across the country—allowing our industry to continue to create jobs here at home and drive U.S. competitiveness on the world stage,” said NAM Managing Vice President of Policy Chris Netram.