Business leaders, specifically the National Association of Manufacturers, have sent a letter supporting the tax reform bills that have recently passed the U.S. House and U.S. Senate. Included with that support were a few suggestions for consideration as the conferees deliberate the final bill.
The first, and most major of these suggestions is maintaining the corporate tax rate cut to 20 percent. Both the House and the Senate bills have a 20 percent corporate tax rate. However, there is talk that it may increase in the final version of the bill. Even a small increase would greatly reduce the competitiveness of America’s tax rates. The NAM has spoken out,
asking lawmakers to either keep the 20 percent rate or reduce the rate to 15 percent. In addition, the Senate’s plan to wait until 2019 for the tax cuts to begin would be detrimental to manufacturers and other businesses.
The second suggestion is the need for reduced tax rates on pass-through business income. The House bill provides for a top rate of 25 percent on pass-through business income, but this rate comes with a great deal of complexity that is detrimental to small business owners. The Senate bill does not have a reduction, but comes with increased deductions for pass through income, which is less complex than the House bill.
The third suggestion is related to capital investment. Both the House and the Senate bills add new limitations on the ability to deduct investment expenses, including disallowing a current deduction for interest on debt. The NAM would prefer such limitations be eliminated or, at the very least, that such limitations not be applied to existing debt.
“Companies of all kinds have entered into loan agreements expecting to be able to deduct the interest from their taxable income when computing their income taxes,” said Ray McCarty, president of Associated Industries of Missouri, the official designated partner of the NAM in Missouri. “Congress should not change the rules and now require businesses to pay tax on interest payments, especially for debt that has already been incurred. Businesses weigh debt options carefully and consider all costs and benefits when making a debt decision. Changing the deductibility of interest could have an impact on these decisions. If not removed entirely, this limitation on the deductibility of interest should only be applied to new debt incurred after the effective date of the limitation,” said McCarty. McCarty said he had been in touch with U.S. Senator Roy Blunt regarding the interest provisions and his office was very helpful in exploring options.
A major concern for manufacturers is maintaining the research and development credit. The House bill had originally eliminated the Alternative Minimum Tax (AMT), however the Senate bill restored it. Under the Senate plan, the AMT rate would be the same as the regular rate, but with less deductions. Many businesses would be forced to pay the AMT, excluding them from realizing any benefit from the research and development credit.
“Research and development is the lifeblood of manufacturing,” said Chris Netram, vice president for tax and domestic economic policy at the National Association of Manufacturers. “The NAM supports pro-growth tax reform, and is working with key policymakers to ensure the final bill does not inadvertently harm manufacturing.”
“We have been advocating re-establishing a state level research and development tax credit in Missouri to help draw that investment into our state,” said McCarty. “At the very least, we need to maintain the existing federal research and development credit to encourage that investment within the United States.”