Policy and Legal

Question 1: Rep. Hern, H.R. 1 made permanent the international tax framework established by the Tax Cuts and Jobs Act—including the GILTI, FDII and BEAT regimes—with targeted adjustments to each. These changes were important for manufacturers with global operations, supporting their ability to compete permanently. As the leader of the Global Competitiveness Tax Team, what convinced you that these provisions should be made permanent, and what does a stable international tax framework allow them to do that years of uncertainty prevented? 

Rep. Hern: “Before the passage of the 2017 Tax Cuts and Jobs Act, there was a strong incentive for multinational businesses to keep their profits overseas rather than repatriate them for investment and job creation in the U.S. The TCJA eliminated this ‘lockout effect,’ encouraging companies to bring back intellectual property and profits to the United States. However, the 2017 law was not a permanent policy, creating uncertainty for multinational manufacturers who make long-term investment decisions. The ongoing uncertainty about potential increases in GILTI rates and the future of FDII created planning paralysis for U.S.-based multinationals. The permanent international tax code now provides the certainty manufacturers need to invest with confidence.” 

Question 2: H.R. 1 locked in the BEAT rate at 10.1% rather than allowing it to jump to 12.5%. From your work on international tax policy, how do you think allowing the rate to increase to 12.5% would have harmed our economic competitiveness?  

Rep. Hern: “The TCJA improved our tax system, moving the United States toward a modern, territorial international tax system. Without the BEAT, the change to a modern territorial system would have created a stronger incentive for multinationals to shift profits abroad via deductible payments to foreign affiliates. The BEAT counteracts base erosion, and it was important to make this provision permanent to provide businesses with certainty about the future of the international system.”  

Question 3: One of the most consequential provisions in H.R. 1 is the new 100% first-year depreciation deduction for qualified production property—allowing manufacturers to immediately expense the cost of constructing new domestic factories and production facilities. This is a genuinely new incentive that goes beyond what the TCJA provided. What was the primary rationale behind expanding immediate expensing to manufacturing facilities? 

Rep. Hern: “After passage of the TCJA, bonus depreciation allowed businesses to immediately deduct the full cost of equipment and machinery. A manufacturer could buy a $200,000 piece of machinery and expense it entirely in the first year. However, the factory building itself that housed that machinery had to be depreciated over a much longer 39-year schedule. This created a major gap in U.S. tax policy. Manufacturers could recover the cost of the machines quickly, but the cost recovery for enormous capital investment in the physical factory lagged far behind. 

The [qualified production property] deduction closes that gap. It extends accelerated expensing treatment to the structures of new domestic production facilities, allowing manufacturers to recover the cost of the building much faster. By dramatically improving the after-tax economics of constructing new factories, QPP makes it significantly more attractive for companies to invest in expanding U.S. manufacturing capacity.” 

Closing: Thank you, congressman. International tax policy is complex territory, and manufacturers benefit enormously from members who understand it as deeply as you do. What can NAM members do to help make the case for continued stability in the international tax framework? 

Rep. Hern: “As chair of the Global Competitiveness Tax Team, [my] goal was to develop strong international tax policies that make America the best place in the world to do business and create jobs for hardworking Americans. It is vitally important for NAM members to show Congress that the system is working by driving investments, supporting domestic job creation and retention, and remaining competitive on the global stage. Sharing real-world examples and data from your businesses with lawmakers means much more when it comes to creating and implementing policy. Your stories can help us create or change legislation based on what’s working and what needs reform.”