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Shopfloor Policy

NAM Calls on Treasury to Modify Proposed Regulations That Would Make It More Costly to Buy Machinery and Equipment

By | Shopfloor Policy, Taxation | No Comments

Thanks in part to tax reform, optimism among manufacturers has hit record levels, manufacturing job growth reached its best pace in decades and manufacturing output hit an all-time high in the third quarter of last year. In short, manufacturers are keeping their promise to create jobs, raise wages and boost investment following tax reform.

Yet recently proposed Treasury regulations, if finalized without modification, would make it costlier to invest for growth in the U.S. In comments submitted this week, the National Association of Manufacturers highlighted the harm facing manufacturers and called on Treasury to change its rule.

The proposed rule implements new limits on the ability of businesses to deduct interest on their debts. For tax years beginning in 2018 through 2021, the tax reform bill limited interest deductions to 30 percent of a company’s earnings before interest, tax, depreciation and amortization (EBITDA). Beginning in 2022, an EBIT standard takes effect, further limiting available interest deductions for capital-intensive industries by excluding depreciation and amortization from the base upon which allowable deductions are calculated.

Treasury’s proposed regulations would effectively impose the stricter EBIT today – four years earlier than expected. Doing so would disproportionately harm manufacturing by making it more expensive to finance capital equipment purchases. Moreover, the proposed rule acts as a disincentive to utilizing full expensing (also known as bonus depreciation), a key pro-growth incentive in tax reform which reduces after-tax costs by providing a 100 percent deduction for the purchase of equipment and machinery. Given that for every one dollar spent in manufacturing, nearly two dollars is added to the economy, this proposed regulation would hurt manufacturers and slow our country’s economic growth.

Protecting the interest deduction is important for manufacturers, and that’s why the NAM is engaging with Treasury, and why it successfully fought during tax reform to ensure that manufacturers would not immediately be subject to the stricter limitation.

It’s clear that Congress intended to provide manufacturers a larger EBITDA base for interest deductions for the next several years. Accelerating a stricter limitation that harms manufacturers is inconsistent with Congressional intent and would make it more difficult for manufacturers to continue to fulfill their promise to increase hiring, invest in the U.S. and continue to raise wages.

The Time is Now for a Robust, Enforceable China Deal that Benefits Manufacturers

By | General, Shopfloor Policy, Trade | No Comments

U.S.-China trade relations are an especially hot topic this week, which is underscored by U.S. Trade Representative Robert Lighthizer testifying this morning at the House Ways & Means Committee on efforts to address critical trade concerns with China. Today’s hearing follows welcome news over the weekend from President Donald Trump that he would delay scheduled tariff increases given “substantial progress” in negotiations and start planning for a summit with Chinese President Xi Jinping in the coming weeks. Yet the work remains unfinished. As Ambassador Lighthizer meets with members of the committee to discuss the status of these talks, manufacturers are redoubling their call for the two sides to negotiate a robust deal, with a rules-based agreement that includes binding, enforceable statutes to halt unfair Chinese trade practices once and for all.

Manufacturers large and small — and policymakers from both political parties — recognize that now is a pivotal moment in U.S.-China trade relations, with a major opportunity to reset that relationship to address a wide range of longstanding issues. China is a critical market for U.S. exports: manufacturers in the United States sell more of what they make to China than to any other country outside of North America—they also rely on China for imports to help grow manufacturing opportunities for workers here in the United States. This two-way trade has clear benefits, yet for too long, China has reaped the rewards of unfair trade practices, from intellectual property theft and discriminatory industrial policies to market access barriers and excess capacity.

The National Association of Manufacturers has led the charge calling for President Trump to negotiate lasting solutions that help manufacturers compete on a level playing field. Last year, NAM President and CEO Jay Timmons wrote to President Trump urging a comprehensive, innovative bilateral trade agreement to address unfair Chinese trade policies, and manufacturers followed up later in the year with detailed negotiating priorities. Leaders in Congress have joined with the NAM in the intervening months calling for a strong deal with China. Such a meaningful outcome would also alleviate pressure for Section 301 tariffs that have caused both operational disruption and significant uncertainty for many manufacturers in ways that have impacted their competitiveness and ability to manufacture in the United States.

Since January, the two sides have had four rounds of intensive negotiations, including nearly continuous negotiations for the past three weeks. Manufacturers applaud these efforts and welcome reports that these negotiations have covered a full set of manufacturing-priority issues, seeking not just product purchases but tangible policy changes and clear enforcement mechanisms that are badly needed. Getting this work across the finish line is critical. The time is now. The opportunity is clear. Manufacturers need to see a binding, enforceable trade deal that fixes longstanding trade distortions.

 

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