Policy and Legal

The international tax system put in place by 2017 tax reform bolsters American competitiveness and supports manufacturing in the U.S.—and that’s why its provisions must be preserved, according to a new policy explainer, part of the NAM’s Manufacturing Wins campaign.

The background: Before passage of the Tax Cuts and Jobs Act, the U.S. tax code made it more costly and less efficient to invest in the U.S. Corporate profits were taxed at the 35% corporate income tax rate when repatriated to the U.S., forcing businesses to keep revenues abroad.

• Tax reform instituted a new, pro-growth international tax regime that incentivizes companies to locate their operations, intellectual property and profits here in the U.S.

The specifics: Tax reform’s international tax provisions include the following:

• A 21% corporate tax rate: Tax reform reduced the corporate rate from 35% to 21%, making “the U.S. a more attractive home for manufacturing investment.”
• The Foreign-Derived Intangible Income deduction: This deduction “reduces taxes for companies that locate job-creating, export-producing intellectual property in the U.S.”
• The Global Intangible Low-Taxed Income regime: The GILTI regime imposes a U.S. minimum tax on income earned abroad in low-tax jurisdictions.
• The Base Erosion and Anti-Abuse Tax: The BEAT applies to certain payments that shift companies’ profits abroad.

Why it’s important: Globally engaged manufacturers face the possibility of significant tax increases at the end of 2025 as key international tax provisions are scheduled to change.

• The FDII deduction will decrease, while the effective GILTI and BEAT tax rates will both increase—upsetting the balance inherent in the TCJA international tax structure and thus making it more costly and difficult for globally engaged companies to operate here in the U.S.

What’s next: In addition to maintaining or reducing the 21% corporate tax rate, the NAM is calling on Congress to prevent the FDII decrease and the GILTI and BEAT tax increases on manufacturers whose success bolsters America’s competitiveness on the world stage.

The last word: “Congress must sustain tax reform’s international tax system, including the lower corporate tax rate, in order to enhance America’s competitiveness and support manufacturers’ efforts to create jobs and grow investment here in the United States,” said NAM Vice President of Domestic Policy Charles Crain.