As we approach the end of 2024, NTMA is closely monitoring a critical financial watershed that could significantly impact our members. With the Tax Cuts and Jobs Act of 2017 set to expire at the end of 2025, we’re keeping members abreast of potential changes that could influence manufacturers’ tax liabilities, investment power, and growth strategies.
In our latest advocacy update, we will explore the “fiscal cliff” business owners will face in 2025, what NTMA is doing to help, and how our members can continue to stay informed on future developments.
The Tax Cuts and Jobs Act: An Overview
The Tax Cuts and Jobs Act, signed into law in 2017, introduced several tax provisions to support businesses. These provisions reduced the following:
1. The C Corporation Tax Rate
One of the most notable changes was the reduction of the C-corporation tax rate from 35 percent—one of the highest in the world at the time—to 21 percent. For many manufacturers structured as C-corporations, this cut yielded greater profitability, offering them the freedom to invest in value-added assets such as equipment, facility upgrades, and workforce development.
2. Pass-Through Business Tax Rates
According to NTMA’s One Voice Advocacy Survey, 67% of NTMA members operated as pass-through businesses—Subchapter S corporations, LLCs, ESOPs, and sole proprietorships— in 2023. Before the Tax Cuts and Jobs Act, pass-through businesses faced individual tax rates as high as 39.6%. This act introduced a 20% Qualified Business Income Deduction (Section 199A), effectively reducing their top rate to approximately 29%.
What Key Provisions Could Impact NTMA Members
While the Tax Cuts and Jobs Act provided substantial tax savings for manufacturers, it currently presents a crossroads for Congress. If they choose to act, they can uphold these tax provisions that have benefited C corporations and pass-through businesses for several years. However, if they do not act by the end of 2025, many of these policies will revert to pre-2017 conditions.
If Congress allows the act to expire without new legislation, we could approach what Omar Nashashibi, NTMA advocacy expert and founder of Inside Beltway, calls a “fiscal cliff” in 2025. This represents a potential $4.6 trillion in tax increases that automatically take effect if Congress fails to act by the end of 2025.
Here’s a look at some critical provisions that could most directly impact our members:
Bonus Depreciation
The Tax Cuts and Jobs Act offered businesses 100% bonus depreciation. Between 70-80% of our members took advantage of this provision, which allowed businesses to fully expense machinery and equipment costs. However, bonus depreciation began phasing out in 2023 and will continue to decline as follows:
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027: Potentially 0%
Reduced bonus depreciation has led to decreased capital investment among our members. In 2023, 51% of NTMA members who participated in our One Voice survey reported a reduction in capital expenditures as a direct result of this phase-out. There is certainly a correlation between the ability to expense machinery purchases and our members’ investment strategies and purchasing power.
Estate Tax Exemption
The Tax Cuts and Jobs Act increased the estate tax exemption to $11 million per individual. However, if this reverts back to the $5 million threshold prior to 2017, it could be detrimental to family-owned businesses that wish to transfer ownership.
R&D Tax Deduction
Under current tax law, manufacturers must amortize their R&D expenses over five years instead of immediately expensing them. This change, which took effect in 2022, has resulted in approximately $250,000 in additional costs for our members annually. 27% of surveyed NTMA members reported reduced R&D activities in 2023 as a result of this tax change—and this number is expected to increase in 2024.
What NTMA Is Doing to Help
NTMA recognizes the significant impact these potential tax changes will have. That’s why we’re taking proactive steps to advocate for favorable outcomes for our members.
- Preserving the Section 199A deduction for pass-through businesses: Our advocacy team is working tirelessly to safeguard the Qualified Business Income Deduction under Section 199A, which would continue to offer tax relief for pass-through businesses.
- Maintaining the C-corporation tax rate: NTMA supports efforts to keep the corporate tax rate at its current level.
- Fully reinstating R&D expensing: Innovation is critical in the manufacturing sector, and NTMA is committed to supporting immediate R&D expensing as a permanent policy. Our members should feel empowered to pursue product development and process improvements without facing financial disincentives.
- Returning bonus depreciation to 100%: Returning bonus depreciation to 100% would incentivize NTMA members to upgrade equipment and expand capabilities. That’s why NTMA is advocating for this tax incentive.
How NTMA Members Can Prepare for the Future
With the 2024 election behind us and the 2025 fiscal cliff approaching, members should consider engaging with lawmakers and voicing support for tax policies that will work in their favor. In addition, they should stay informed on upcoming legislative changes that will occur under the Trump administration and plan their capital spending and expansion strategies accordingly.
In 2025 and beyond, NTMA will remain dedicated to educating policymakers on the critical impacts of tax policies on American manufacturers and serving our members’ best interests. And we will continue to provide updates on significant policy developments as they reach Capitol Hill.
As always, be sure to leverage your NTMA membership to stay abreast of current and future policies that may affect your business.
