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As part of the NAM’s “Manufacturing Wins” tax campaign, small and medium-sized manufacturers are urging Congress to reinstate the pro-growth interest deductibility standard implemented by the 2017 Tax Cuts and Jobs Act—which was crucial to making debt financing for capital equipment purchases more affordable for manufacturers.

What’s happening: Tax reform allowed companies to deduct the interest they pay on business loans, up to a cap of 30% of their earnings before interest, tax, depreciation and amortization (EBITDA).

• But as of 2022, companies can only deduct interest up to 30% of their earnings before interest and tax (EBIT). This stricter limit raises borrowing costs for manufacturers, making it harder for them to finance job-creating investments in equipment and machinery.

Why it matters: Ankeny, Iowa–headquartered manufacturer Accumold was able to hire the talent it needed because of tax reform’s incentives for capital investment, including the EBITDA-based business interest limitation. “Thanks to tax reform, Accumold was able to increase our capital investment and add to our teams,” said President and CEO Roger Hargens.

• “By excluding depreciation and amortization expenses from the interest deduction calculation, the EBIT standard makes debt financing more expensive—punishing manufacturers with significant investments in depreciable assets like equipment and machinery, as well as valuable intellectual property subject to amortization,” explained Sukup Manufacturing President and CEO Steve Sukup, whose company is based in Sheffield, Iowa.

Supply chain implications: The change has had far-reaching effects on supply chains across the country, hitting small manufacturers—such as Pennsylvania-based Erie Molded Packaging—hard.

• “The majority of my customers buy and sell large pieces of capital equipment that require debt financing,” President Tom Tredway said. “Their inability to deduct interest makes borrowing more expensive, impacting small manufacturers’ economic health and ability to grow. Policy changes cause ripple effects across every level of the supply chain, and small manufacturers often take the biggest hit.”

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