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Policy and Legal

NAM Leads Effort to Reform PBMs

Middlemen created to manage the price of prescription drugs are instead driving up health care costs for manufacturers and manufacturing workers, the NAM told the House Committee on Oversight and Accountability on Tuesday, the same day the committee released a report on pharmacy benefit managers’ practices and held a hearing on the matter.

What’s going on: “PBMs’ business models have the direct effect of increasing health care costs at the expense of manufacturers and manufacturing workers,” NAM Vice President of Domestic Policy Charles Crain said in advance of the hearing, the latest in a series examining PBM practices.

Crain told lawmakers PBM reform legislation should include:

  • Increased transparency into PBMs’ business models and the many factors that contribute to a drug’s costs, formulary placement and the PBMs’ compensation;
  • Rebate passthrough, which will ensure 100% of negotiated pharmaceutical savings are passed from the PBM to the health plan sponsor and workers; and
  • Delinking of PBM compensation from the list price of medication.”

Report highlights: The committee’s report, the culmination of a 16-month investigation, is in line with the NAM’s longstanding advocacy. The report found that PBMs:

  • Drive increased drug prices, which inflate PBM profits;
  • Extract high rebates from biopharmaceutical manufacturers, often pocketing a significant portion of any savings rather than reducing costs for patients;
  • Dictate whether and how medicines appear on formularies, which determine insurance companies’ coverage decisions and patients’ out-of-pocket costs;
  • Steer patients toward drugs based on PBMs’ profit margins rather than patient costs; and
  • Operate without sufficient transparency into their business practices.

What it all means: The committee “identified numerous instances where the federal government, states and private payers have found PBMs to have utilized opaque pricing and utilization schemes to overcharge plans and payers by hundreds of millions of dollars,” the report states.

  • The report indicates that the present role of PBMs in prescription drug markets is failing and requires change, something the NAM has long advocated. “Congress and states must implement legislative reforms to increase the transparency of the PBM market and ensure patients are placed at the center of our health care system, rather than PBMs’ profits.”

The last word: “Manufacturers provide health care benefits so they can effectively attract and retain employees, to maintain a healthy and productive workforce and because they believe it is the right thing to do—but PBMs are a meaningful cause of the skyrocketing costs of health care,” Crain said.

  • “Congress must enact reforms to the PBM system so that employers can negotiate, compete and achieve health care savings for their workers.”
Business Operations

Foxconn Shines a Light on Solar Energy

Manufacturers across the U.S. are taking new steps toward sustainability. For Foxconn—a consumer electronics contract manufacturer and solutions provider with U.S. headquarters in Milwaukee, Wisconsin—that effort is about to get a big boost.

The project: Foxconn is developing a massive field of 2,000 solar panels covering nearly eight acres of land around a retention pond at its Racine County campus in Mount Pleasant, Wisconsin.

  • The panels are expected to go live at the end of July, when they’ll generate approximately one megawatt of power, which will be used to manufacture data servers.
  • “That’s about 1,200 metric tons of carbon dioxide saved every year and enough energy to power about 300 American homes,” said Robert Schlaeger, head of U.S. government relations for Foxconn.

The big picture: The project—a partnership between Foxconn and utilities provider We Energies—is part of a bigger initiative from Hon Hai Technology Group in Taiwan.

  • Hon Hai already uses green energy for about 40% of its power consumption across global operations. It has pledged to run wholly on green energy by 2040 and to achieve net-zero emissions by 2050.
  • “This is really a top-down approach for the entire technology group under the leadership of our Chairman Young Liu,” said Schlaeger. “You can see how that trickles down to the things we try to achieve at a regional level and within those regions, down to the site level.”

The impact: In 2022, the technology group spent $75 million globally on 1,877 energy-saving projects. Schlaeger views sustainability projects such as the Foxconn solar field as an important signal of the company’s commitment.

  • “As Foxconn grows and responds to market demand around the world or within the United States, renewable energies demonstrate the company’s commitment to environmental stewardship across supply chains—to our customers and to our communities,” said Schlaeger.

The business case: Investments like this one are important to the company’s long-term future, but they also matter to customers right now.

  • “We have customers who want to know that they are employing contract manufacturers like us that are producing their product in a responsible manner,” said Schlaeger. “What type of energy are you using? Where does the energy come from? These questions are important to our customers—and we want to show them that whether you look to our aspirations as a whole, or down to the site, you can see our commitment to green energy.”
Policy and Legal

Daines, Smucker Staffers Talk Pass-Through Deduction

 

What’s going on: On Thursday, as part of its 2025 tax campaign, “Manufacturing Wins,” the NAM hosted Noelle Britton, deputy chief of staff for Rep. Lloyd Smucker (R-PA), and Caroline Oakum, tax counsel for Sen. Steve Daines (R-MT), in a virtual roundtable to discuss what’s being done in Congress to maintain the Section 199A pass-through deduction.

  • The 20% deduction—created by the 2017 Tax Cuts and Jobs Act to help the many small and medium-sized businesses in the U.S.—is among several vital tax provisions scheduled to expire at the end of 2025. (Pass-throughs are companies whose profits are “passed through” to the owners, who then pay taxes on the entities’ incomes on their personal tax returns.)
  • Both Rep. Smucker, who leads the House Ways and Means Main Street Tax Team, and Sen. Daines are leaders of legislation that would make the deduction permanent.

What they’re doing: Sen. Daines introduced the Main Street Tax Certainty Act in the Senate last May, while Rep. Smucker introduced the House’s version of the measure last July.

  • The legislation would make the pass-through deduction permanent, providing much-needed certainty to the small and medium-sized manufacturers that have relied on it to increase investments and job creation.

What you can do: The House Ways and Means Committee Tax Teams are collecting companies’ perspectives on how the pass-through deduction has helped manufacturers and other businesses. Similarly, the NAM is collecting stories that can be used as part of our Manufacturing Wins tax campaign.

  • Manufacturers willing to share their own stories about the pass-through deduction can email [email protected] or contact the NAM’s tax team.
Policy and Legal

Sen. Daines: How We’re Working to Avert a Tax Crisis

Manufacturing-critical provisions from 2017 tax reform are set to expire at the end of next year—unless Congress acts. As part of our 2025 tax campaign, Manufacturing Wins, the NAM recently interviewed Sen. Steve Daines (R-MT) to learn more about what these expirations would mean for manufacturers and what Congress is doing to prevent the resulting tax hikes.

Here’s the written interview.

NAM: Sen. Daines, many of tax reform’s pro-manufacturing policies expire at the end of 2025—including those with disproportionate impacts on small manufacturers, like the pass-through deduction and the individual income rate cuts. What is Congress doing to prevent these damaging tax increases?

Daines: The best defense against a looming tax hike is a good offense. Senate Finance Republicans have begun organizing to examine the [Tax Cuts and Jobs Act of 2017] policies expiring next year, and the pass-through deduction is at the top of that list. We can’t allow these provisions to expire and let America’s working families, manufacturers and small businesses face a $6 trillion tax hike. That will make manufacturers less competitive against foreign competition by stifling investment and crushing their bottom line at a time when they should be looking for ways to increase wages and invest in innovation.

NAM: You have introduced the Main Street Tax Certainty Act in the Senate and been a champion for pass-throughs since the TCJA was signed into law. How would your bill prevent tax hikes for pass-through manufacturers?

Daines: The Main Street Tax Certainty Act provides much-needed certainty to America’s small businesses by making the pass-through tax deduction permanent. This helps create good-paying jobs and grows the economy. If it’s allowed to expire, small businesses face an immediate 20% tax hike.

NAM: The Senate Finance Committee has established tax working groups to examine the TCJA expirations. What will be your focus as the committee begins examining these scheduled tax changes?

Daines: My focus is on making the Trump era tax cuts permanent, which will create a more stable, growing economy.

Workforce

Heroes MAKE America Draws a Crowd

Nearly 100 veterans attended a manufacturing career fair at Fort Riley, Kansas, last week, including many who had prepared for their new careers via the Heroes MAKE America program (Kansas Biz News).

What’s going on: “The career fair and other events held by Heroes MAKE America and Manufacturing Institute [the NAM’s 501(c)3 workforce development and education affiliate] aim to grow the manufacturing industry’s workers for the advancement of modern manufacturing and offer programs, including informational sessions, career fairs, networking, career readiness, placement support and manufacturing tours.”

  • More than 30 regional and national manufacturers had booths at the event.

How it helps: HMA—an MI program with a 90% graduate placement rate—offers career help to job seekers transitioning out of the military and into the civilian workforce. The aid is in the form of training and introductions to manufacturing leaders seeking employees.

  • One military member who attended the fair said “she’s received help with resume writing, interviewing for jobs and how to translate military experience into tools you can use in the civilian world.”
  • HMA, which hosts virtual career fairs throughout the year, also offers resources to employers. These include online training, courses and access to the research of the Society of Human Resource Management Foundation.

Why it’s important: The industry could create about 3.8 million new manufacturing jobs on net between this year and 2033, according to a new study by Deloitte and the MI.

  • However, if the current manufacturing employee deficit is not shored up, approximately half of these jobs—or 1.9 million—could go unfilled.

What’s next: Interested employers can participate in an information session to be held later this month, where they can learn more about attracting, hiring and retaining military talent through upcoming career fairs and virtual hiring events.

The last word: “Members of the military community often possess valuable skills and qualities—such as discipline, teamwork, leadership and problem-solving abilities—that are in demand for manufacturing careers,” said MI President and Executive Director Carolyn Lee.

  • “That’s why manufacturers are increasingly connecting with this top talent through an array of resources provided by the MI’s Heroes MAKE America initiative.”
Policy and Legal

NAM, Rep. Smucker Talk “Tax Armageddon”

Manufacturers face a tax cliff in 2025, but there is still time for Congress to prevent devastating tax increases. By acting before the end of next year, legislators can preserve the 2017 tax reform and ensure manufacturers can continue creating jobs and driving economic growth across the country.

What’s going on: As part of Manufacturing Wins, the NAM’s 2025 tax campaign, the NAM asked Rep. Lloyd Smucker (R-PA) for a download on what Congress is doing to prevent “Tax Armageddon” for manufacturers.

  • Smucker, chair of the House Committee on Ways and Means’ recently formed Main Street Tax Team, is a champion of the Section 199A pass-through deduction, one of the manufacturing-critical provisions set to expire at the end of 2025.
  • Pass-throughs are companies whose owners pay tax on the business’s income on their personal tax returns—and most small and medium-sized manufacturers are organized as pass-through entities.
  • The loss of the pass-through deduction and an accompanying increase in individual tax rates—both scheduled for the end of 2025—would be a one-two punch for small manufacturers.

Below is the written interview.

NAM: Congress is facing a Tax Armageddon next year, as crucial provisions from 2017’s Tax Cuts and Jobs Act are set to expire. As the leader of the Ways and Means Main Street Tax Team, what is your focus moving into next year’s debate?

Smucker: The Main Street Tax Team is tasked with examining the areas of the tax code that impact main street businesses. Looking ahead to what parts of the code are set to expire in 2025, one of the most important provisions our team is focused on is extending the Section 199A deduction for pass-through businesses. This 20% deduction was enacted as a part of the Tax Cuts and Jobs Act and helped create tax parity for millions of American businesses with their larger corporate competitors while incentivizing reinvestment back into their business and employees.

If Congress does not act, Section 199A will expire at the end of 2025, and main street businesses could face a 43.4% tax rate. Our tax team is working to build awareness of the pending tax hike if Section 199A expires, while laying the groundwork for making this important provision permanent by hearing directly from businesses on the impact this deduction has had on their ability to grow and increase productivity. 

NAM: Most small manufacturers are organized as pass-throughs, which means that they pay tax on their owners’ returns. The scheduled increase in individual tax rates combined with the loss of the pass-through deduction—a 20% deduction that lowers these companies’ tax obligations—will mean that these businesses are the hardest hit by the 2025 tax cliff. What is Congress doing to protect small businesses from tax hikes? 

Smucker: To protect businesses from devastating tax hikes, the Ways and Means Committee has gone on the road holding field hearings throughout the nation to hear directly from small business owners about how the Tax Cuts and Jobs Act improved their ability to compete and grow. During these field hearings, we’ve heard from many businesses, including manufacturers, how the TCJA helped improve the quality of life of hardworking Americans. We’re continuing to use this model by having each tax team host at least one field event to reach more communities.

The Main Street Tax Team will be heading to my district in the coming weeks to hear from Pennsylvania businesses about the importance of preserving Section 199A. I also encourage NAM members across the U.S. to share with their representatives what this provision, and other parts of the tax code, mean for their business. The public can share information on the impact of higher taxes directly with my colleagues on the Ways and Means Committee too by visiting our public comment portal.

NAM: Pass-through manufacturers generally pay tax at the top individual tax rate—currently 37%—but this bracket is scheduled to increase to 39.6% next year. Is your team examining how these rates impact pass-through businesses? 

Smucker: Yes, in addition to the field event, my team members and I will be meeting with stakeholders in each of our districts throughout the rest of this year to discuss the impact higher taxes will have on our constituent’s families, businesses and communities. My team will also be hosting several D.C.-based roundtables with tax experts and economists to examine the impact of changes to the code.

NAM: Thank you for being a champion for manufacturing pass-throughs across the country. What can our members do to stay involved and be a resource for your tax team’s work? 

Smucker: Continue to share your stories about how Section 199A has helped your businesses, and how tax hikes would be harmful. I strongly encourage NAM members to invite their representatives for site visits to your businesses so they can see firsthand the benefits of a competitive tax code. Finally, I’d close with a request to have NAM members ask their representatives to cosponsor H.R. 4721, the Main Street Tax Certainty Act, my legislation to make Section 199A permanent. I am working to build as much backing as possible for the bill heading into our tax reform discussions next year to send a signal that preserving this deduction is important. 

Policy and Legal

NAM Legal Center Talks Chevron

The Supreme Court’s ruling in the closely watched Loper Bright Enterprises v. Raimondo is a watershed decision for administrative law with significant implications for the business community. The NAM Legal Center provided us with an overview.

What’s going on: Late last month, the Supreme Court overturned the “Chevron doctrine,” which since 1984 had required federal courts to defer to an administrative agency’s interpretation of an ambiguous statute—so long as the interpretation was reasonable.

What it means: The end of the doctrine means less power for federal agencies, potentially fewer regulations and a guaranteed surge in regulatory litigation, according to the Legal Center.

  • When Congress leaves ambiguities or gaps in statutes, agencies can no longer exploit those gaps to enact overreaching rules or regulations (read the NAM’s statement on the decision here).
  • Although Chevron had not been cited by the Supreme Court since 2016, it is the basis for 70 Supreme Court opinions and approximately 17,000 lower court decisions. Those holdings remain intact for now but could be challenged anew by litigants under the new standard. 

The majority opinion: Writing for the majority, Chief Justice John Roberts relied on a plain-text reading of the Administrative Procedure Act, which directs courts—not agencies—“to decide all questions of law.”

  • “The APA, in short, incorporates the traditional understanding of the judicial function, under which courts must exercise independent judgment in determining the meaning of statutory provisions,” he wrote.
  • Absent an explicit delegation by Congress, agency interpretations can guide or inform courts, but in keeping with the APA, they cannot be given binding deference. According to the court, all statutes “have a single, best meaning,” and “courts use every tool at their disposal to determine the best reading of the statute and resolve the ambiguity.” 

The dissent: Writing for the liberal justices in dissent, Justice Elena Kagan expressed concerns with overturning this “cornerstone” of regulatory law by shifting interpretative authority from “expert, experienced and politically accountable agenc[ies]” to courts that have “no special competence.”

In sum: The decision will result in a broad reduction in the power of executive branch agencies, with that power shifting to federal courts.

  • Thus, regardless of the party in power or its pro- or anti-regulatory leaning, much less regulatory discretion will be afforded to the agencies.

The NAM predicts: Looking forward, the NAM sees Congress and regulators turning to industry for input as policies are adopted and statutes are interpreted, giving manufacturers an opportunity to play a more significant role in shaping outcomes.

What we’re doing: The NAM Legal Center is currently leading regulatory challenges against the Environmental Protection Agency, the Occupational Safety and Health Administration and the Securities and Exchange Commission. It will continue to push back on overreaching agency actions that threaten manufacturing competitiveness—now on a more even playing field.

Policy and Legal

CISA Should Revise Draft Cyber Rule

Requirements proposed earlier this year by the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency are overbroad and would prove burdensome to manufacturers if adopted, the NAM told the Biden administration last week.

What’s going on: In April, CISA published draft rulemaking under the Cyber Incident Reporting for Critical Infrastructure Act of 2022—scheduled to go into effect next year—that would require “covered entities” in “critical infrastructure sector[s]” to report major cyber incidents to CISA within 72 hours. It also mandated that any ransomware payments be reported within just 24 hours.

Why it’s a problem: The proposed rulemaking could affect more than 300,000 entities, according to CISA’s own estimate (JD Supra). Many of these organizations are either not truly “critical infrastructure” or too small to have the resources to undertake the outlined actions in the specified time, the NAM told CISA.

  • Furthermore, the regulations themselves are too expansive, mandating the reporting of incidents that do not even affect the operation of critical infrastructure.
  • They also require huge amounts of information in a short period—from companies in the throes of recovery from devastating cyberattacks.

The NAM says: “[T]he NAM respectfully encourages the agency to drastically reduce the number of entities required to report, and the number of incidents they have to report,” NAM Vice President of Domestic Policy Charles Crain told the agency during the public comment period on the proposed regulation, which ended last week.

  • “Doing so will ensure that CISA receives useful information about cybersecurity incidents—without overburdening manufacturers with overbroad and unworkable disclosure requirements.”

What to do: In addition to narrowing the scope of “covered entities,” CISA should revise several aspects of the rulemaking before implementing it, the NAM said. Changes should include:

  • Limiting the volume of reported cyber-incident information;
  • Narrowing the scope of reportable cyber incidents; and
  • Lightening and safeguarding the contents of cyber-incident reports.
Policy and Legal

Q&A: The Looming 2025 Tax Challenge

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The NAM recently launched “Manufacturing Wins,” the manufacturing industry’s campaign to preserve the benefits of the 2017 tax reforms that are currently scheduled to disappear in 2025—particularly those tax incentives that make it easier for small manufacturers to hire employees and raise wages, invest in equipment, grow their businesses and contribute more to their communities.

NAM Vice President of Domestic Policy Charles Crain explains what’s at stake in 2025 and how manufacturers can get involved in the effort to prevent tax increases.

Q: Manufacturers are facing “tax Armageddon” at the end of 2025. Can you explain what’s happening?

Crain: Tax reform in 2017 was rocket fuel for manufacturers, leading to record job creation, capital investment and economic growth. For example, manufacturing production grew 2.7% in 2018, with December 2018 being the best month for manufacturing output since May 2008. Manufacturing capital spending grew 4.5% and 5.7% in 2018 and 2019, respectively—this shows the direct impact of pro-growth tax incentives on manufacturers investing in new equipment and facilities. But many of tax reform’s pro-manufacturing provisions will expire at the end of 2025. If these provisions are allowed to expire, virtually every manufacturer will face devastating tax increases.

Q: What policies will sunset in 2025, and how will their expiration impact SMMs?

Crain: For small manufacturers organized as pass-throughs—meaning the business’s owners pay tax on the business’s income on their personal returns—two key changes are coming down the pike. First, their tax rate will increase, from 37% to 39.6%. Second, they will lose the pass-through deduction, which provides a tax deduction equal to 20% of the business’s income. In combination, these tax hikes will increase pass-throughs’ effective tax rate by at least 10 percentage points (from 29.6% to 39.6%), resulting in significantly less capital available for equipment purchases, job creation and community investment.

For small manufacturers organized as corporations, the NAM is fighting to prevent any increases in the corporate tax rate. The corporate rate decreased from 35% to 21% in 2017 and is not scheduled to expire—but President Joe Biden has proposed increasing the rate to 28%. The NAM remains staunchly opposed to corporate tax rate increases that punish manufacturers for investing and creating jobs here in America.

For family-owned small manufacturers, their estate tax obligations are scheduled to increase. Tax reform doubled the value of assets that can be passed on without incurring the estate tax; at the end of 2025, the estate tax exemption threshold is scheduled to be reduced by half. The NAM is calling on Congress to maintain the increased exemption—or to repeal the estate tax entirely, preventing family-owned businesses from being sold for parts to pay a tax bill when a loved one passes away.

Q: What else is at stake in 2025?

Crain: Manufacturers of all sizes continue to face uncertainty about the tax code’s treatment of R&D expenses, capital equipment purchases and interest on business loans. Immediate R&D expensing—which allows manufacturers to write off the entire cost of R&D spending in the year incurred—expired in 2022. So did a tax reform provision that allowed businesses to deduct more of the interest they pay on loans when they debt finance a project. And in 2023, 100% accelerated depreciation—which reduces the cost of capital equipment purchases—began to phase down. These expired provisions are vital to manufacturing growth, and the NAM is working to restore and extend them as Congress prepares for the 2025 tax fight.

Q: How can SMMs learn more?

Crain: The NAM recently published “What’s At Stake: Manufacturers Face Devastating Tax Increases in 2025,” which highlights the tax reform provisions that will expire at the end of 2025. The NAM calls on Congress to act to prevent these expirations from stunting manufacturing job creation, growth and innovation.

Q: How can SMMs get involved?

Crain: Manufacturing voices are crucial to the 2025 tax fight. NAM members with a story to tell about the impact of 2017 tax reform on their business—or the damage that the 2025 expirations could inflict—are encouraged to reach out to their NAM membership advisor or to the NAM tax team.

You can also take a few minutes to record a video testimonial calling on Congress to prevent devastating tax hikes on manufacturers. Instructions for submitting a video testimonial are available here—it’s as easy as having a coworker use a smartphone to film a video of you on your shop floor! Completed testimonials can be emailed to the Manufacturing Wins team to be posted to our campaign site: NAM.org/MfgWins

Business Operations

NAM, Allies to Biden: Intervene in Port Talks Now

A labor strike on the U.S. East and Gulf Coast strike would have dire consequences for the maritime supply chain, the NAM and partner organizations told the Biden administration this week—which is why it’s vital the administration intervene now to restart stalled labor negotiations between dockworkers and an alliance of port operators and ocean carriers.

What’s going on: “Earlier this month, contract negotiations broke down between the International Longshoremen’s Association and the US Maritime Alliance,” Bloomberg Government (subscription) reports. “The current agreement, which covers about 45,000 dockworkers at facilities including six of the 10 busiest US ports, expires Sept. 30.”

  • The NAM and more than 150 other industry organizations on Wednesday urged the administration to “immediately work with both parties to resume contract negotiations and ensure there is no disruption to port operations and cargo fluidity.”

Why it’s important: Other global shipping-related setbacks and threats mean the U.S. cannot withstand another challenge, the groups said. Continued Houthi terrorist attacks on commercial ships in the Middle East have resulted in “congestion and lack of equipment at overseas ports, carrier capacity issues as they continue to divert vessels away from the Red Sea and increased freight rates.”

Precedent set: Last September, after 14 months of negotiations and several work stoppages and walkouts, West Coast dockworkers reached a labor agreement with the Pacific Maritime Association—following NAM-urged intervention by the Biden administration.

  • “We witnessed a significant shift of cargo from the West Coast to the East Coast and Gulf Coast ports because of the challenges and uncertainty during the last West Coast port labor negotiations,” said the groups. “While much of that business has remained at the East Coast and Gulf Coast ports, we are starting to see a shift back to West Coast gateways, where a long-term contract is in place, especially as we enter the busy peak shipping season.”
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