As Congress prepares to address tax reform, lawmakers are being urged to consider the significant economic ramifications of not extending vital provisions from the Tax Cuts and Jobs Act (TCJA). The manufacturing sector, crucial to the U.S. economy, relies heavily on specific benefits such as the business pass-through deduction and reduced tax rates for both individuals and corporations. Industry leaders are calling for immediate action to make these provisions permanent, emphasizing their importance in sustaining jobs and fostering innovation.
Courtney Silver, president of Ketchie, Inc., a precision manufacturing company in Concord, North Carolina, recently shared her insights during a testimony before the Ways and Means Committee. She highlighted how the TCJA has positively impacted her business since its implementation in 2017. Ketchie has invested nearly $1 million in new equipment, expanded its workforce by 20%, and achieved wage increases for the first time in 15 years. Silver warned that failing to extend the TCJA benefits could lead to a substantial tax burden for companies like hers, jeopardizing their growth and stability.
A recent analysis underscores the potential fallout from allowing the TCJA provisions to expire. According to the study, not extending these tax cuts could jeopardize 1.1 million jobs and $126 billion in employee compensation across various industries, with the manufacturing sector facing particularly severe consequences. The pass-through deduction, which allows businesses to deduct up to 20% of their qualified income, is especially critical since around 96% of U.S. businesses fall into this category. Many manufacturers are concerned that losing this deduction would hinder their ability to invest and innovate.
In addition to the pass-through deduction, the TCJA’s reduction of marginal tax rates for individuals is also at stake. If these rates revert to pre-TCJA levels, taxpayers would face higher tax burdens, which could dampen consumer spending and overall economic activity. The TCJA also doubled the estate tax exemption, a provision that benefits small businesses and families, particularly family-owned farms and manufacturers. This exemption simplifies the process of transferring businesses without incurring heavy tax liabilities, a crucial factor for many family-owned enterprises.
The TCJA included other important provisions that are set to expire or have already expired, such as full expensing and interest deductibility. Full expensing enables manufacturers to lower initial investment costs in equipment, while interest deductibility allows them to manage their financial obligations more effectively. The expiration of these provisions could greatly restrict manufacturers’ ability to invest and expand, with significant consequences for job creation.
The potential loss of these tax benefits is not just a concern for large manufacturers; it poses a threat to job security across the nation. In states like Texas and California, the expiration of TCJA provisions could lead to the loss of over 500,000 jobs and significantly affect employee compensation. The manufacturing industry, which plays a vital role in the U.S. economy, relies on the ability to fully expense costs, deduct interest, and treat business profits as income.
With the current legislative session, Congress has an opportunity to revise and extend these essential tax code provisions. The manufacturing sector serves as a prime example of how a simplified tax code can spur economic growth, create jobs, and increase wages. Industry advocates are urging lawmakers to act swiftly to protect the TCJA and ensure the continued strength of American manufacturing.