NFFS joins NAM effort supporting tax policy change

NFFS and its Government Affairs Committee has joined the National Association of Manufacturers (NAM) in calling for immediate action to extend three tax policies vital to workers and America’s immediate future: immediate R&D Expensing, a pro-growth interest deductibility standard and full expensing. The effort includes a multi-organizational letter calling on Congress to protect businesses' ability to continue to immediately deduct R&D expenses, finance job-creating investments through a pro-growth interest deductibility standard and fully deduct capital equipment purchases. Additional detail on each topic with some corresponding language from the Congressional letter is provided below:

Immediate R&D Expensing:
According to the NAM, U.S. manufacturers, who drive more innovation than any other sector, face a harmful tax change that will drastically hinder R&D across the industry, threatening thousands of jobs and critical innovation that upholds America’s economy and national security. As stated in the join letter to Congress:

“For nearly 70 years, the tax code recognized the importance of R&D by allowing businesses to fully deduct their R&D expenses in the same year they were incurred. Unfortunately, starting in 2022, the tax code has required businesses to amortize (or deduct over a period of years) their R&D expenses, making R&D more costly to conduct in the U.S. This harmful tax change has resulted in significant cash flow impacts on businesses, particularly for start-ups and small businesses, with some having to forego hiring, delay investments and take out loans to pay the higher tax bills. In fact, recent data shows that tens of thousands of jobs are at risk if the harmful R&D amortization requirement remains in place.”

Interest Deductibility:
Many manufacturers borrow funds to finance long-term investments in equipment and facilities, which in turn help create jobs and enable manufacturers to compete effectively in today’s global economy. At the beginning of 2022, a stricter limitation on the deductibility of the interest payments on business loans went into effect, increasing the cost of financing critical investments in machinery and equipment. The joint letter states:

“Prior to January 1, 2022, businesses’ interest expense deductions were limited by section 163(j) to 30% of their earnings before interest, tax, depreciation and amortization (EBITDA). Interest deductions are now limited to 30% of earnings before interest and tax (EBIT). By excluding depreciation and amortization, the stricter EBIT standard acts as a tax on investment by making it more expensive for capital-intensive companies throughout the supply chain to finance job-creating growth. Congress must take urgent action to restore a pro-growth interest deductibility standard. Enabling businesses to efficiently finance growth at a time of rising interest rates will protect the U.S. economy, and particularly small and medium-sized businesses, from damaging job losses that will be felt across the country.”

Full Expensing:
Since 2017, manufacturers have been able to utilize 100% accelerated depreciation, or “full expensing,” to immediately deduct the cost of purchased capital equipment. By reducing the cost of machinery, full expensing ensures that small and medium-sized manufacturers can scale up their operations, strengthen their teams’ productivity and create more products that improve the quality of life for everyone. This tax policy helps position the United States to attract capital investments in a competitive global economy. The letter argues for the elimination of the phase out of full expensing beginning in 2023 as detailed in following letter text:

“Over the past several decades, the tax code has provided businesses with varying degrees of first-year expensing (i.e., accelerated depreciation). A 100% deduction for the purchase of equipment and machinery in the tax year purchased was in place from 2017 through 2022. Congress enacted full expensing to spur investments and ensure that the U.S. is well-positioned to attract capital in a competitive global marketplace. However, full expensing began to phase out at the beginning of 2023 and will be eliminated completely by 2027. Congress must act swiftly to restore full expensing, as failing to do so will make it costlier for businesses to undertake job-creating investments in the U.S. Supporting businesses’ ability to invest in capital equipment will strengthen domestic supply chains and ensure that the U.S. can compete effectively on a global scale.”