Manufacturers are on the cusp of seeing historic tax reform in Washington D.C. and we need your help to move the ball across the goal line this week. In the next few days, Congress and the U.S. Senate are expected to vote on the Tax Cuts and Jobs Act.
The bill is a major win for manufacturers and we want too make sure our elected leaders understand that and ask them to stand with manufacturers and their employees located in their districts. The IMA has been working with leadership at the National Association of Manufacturers (NAM) to craft a bill that will spur the industrial sector.
The text of the bill can be found here and the explanatory statement can be found here. Here are some of the key provisions:
- A permanent corporate rate of 21 percent, effective January 1, 2018.
- No corporate AMT. This is a big win for manufacturers.
- For pass-through entities, a reduction in the top individual rate (down from 39.6 percent to 37 percent) and a 20 percent deduction for manufacturers’ business income. This deduction is subject to a limit based on the greater of 50 percent of W-2 wages paid in your business or the sum of 25 percent of W-2 wages plus 2.5 percent of the basis of your depreciable property. Note that the bill also repeals the “Pease” limitation on itemized deductions. NAM and the manufacturing sector worked hard to get the best possible deal for pass-through entities.
- The adoption of a territorial tax system. Conferees did not adopt the House excise tax. Instead, the final bill includes the Senate “BEAT” tax. Stripping the House excise tax from the bill was a win for manufacturers.
- Full expensing for property acquired between September 28, 2017 and December 31, 2022. Thereafter, the bonus depreciation percentage decreases by 20 points per year, phasing out entirely by 2027. The final bill no longer requires property eligible for bonus depreciation to be new; it extends this benefit to used property as well.
- R&D tax credit. A permanent R&D tax credit has long been a priority for the NAM and the IMA, and this represents a victory. However, the bill changes the treatment of deductible research and experimental costs starting January 1, 2022. After that date, these expenses must be amortized over five years.
- Interest deductibility that meets two goals: the adoption of an EBIDTA standard for the 30 percent limitation and elimination of the proposed worldwide limit. Our team fought hard against the Senate’s proposal, which would have limited interest deduction to 30 percent of EBIT – vastly shrinking the earnings base upon which manufacturers’ allowable deductions would be calculated. Manufacturers also pushed hard for the elimination of the additional worldwide limitation on interest expense that was included in both bills. We took members up to the Hill as well as to Treasury to make the make for exactly these changes, and scored a victory on both. The final bill only allows for EBITDA through 2021, we will continue to fight to make this standard permanent.
- Repatriation of 15% rate for cash and 8% rate for earnings reinvested in hard assets, with an 8-year window to pay the tax.
This legislation represents historic progress for manufacturers and for all Americans. We will continue working in the months and years ahead to make even more progress.
Help us win this fight.
1) Contact your Member of Congress today! You can find their contact information here. Tell them to vote for this bill-and make sure they stand on the side of manufacturers.
2) Encourage your employees, suppliers, friends and family to directly contact their Member of Congress too. Just send them this link to help them get started. (You can post that link on your organization’s social media channels like Facebook and Twitter accounts, to expand your reach.)
3) Ask them to explain how tax reform will help their business. Members of Congress have asked manufacturers to give them examples of the impact this bill will have on their companies. They can click here to layout a few points on what tax reform means to their company, and we’ll relay their story to their Members of Congress.
President and CEO
Illinois Manufacturers’ Association