Manufacturing Outlook: Federal Tax and Regulatory Changes

Expanding domestic manufacturing is one of President-elect Donald Trump’s top policy suggestions and he’s proposed several regulatory and tax policies designed to promote long-run economic growth within the industry.

Early indications are the new administration’s focus may include reducing regulations, cutting taxes, securing new trade deals, enabling reliable and abundant low-cost energy, and promoting innovation.

While these policies offer the potential to drive substantial economic benefits, they also present challenges related to global market stability. Explore the potential impact of these proposed policies on the manufacturing industry.

Possible federal regulation policies that could impact manufacturing

The new Trump administration has floated several suggested policies seeking to provide advantages to American companies over foreign competition. The policies aim to rebalance trade, provide strategic independence, revitalize manufacturing, and prioritize domestic production, though some manufacturing executives don’t think increased tariffs will boost domestic production. His suggested proposals include:

• Tariffs on imports — Trump has suggested several tariffs on imports including:
  • Increasing tariffs on Chinese imports to 60%
  • Creating a universal tariff of 20% on all U.S. imports
  • Adding a foreign retaliation of 10% on all U.S. exports plus additional in-kind tariffs on U.S. exports to China
• "America First" trade policies — Advocating for renegotiating trade agreements to prioritize American workers and businesses.
• Infrastructure investment — Investing in infrastructure improvements with the belief better roads, bridges, and ports could boost manufacturing and logistics.
• Supporting energy production — Encouraging the expansion of domestic energy production — including fossil fuels — to potentially lower energy costs for manufacturers and reduce reliance on foreign energy sources. It’s also been proposed to eliminate green energy subsidies.
• Deregulation — Rolling back regulations deemed burdensome for manufacturers under the belief fewer regulations could lead to increased production and job growth.
• Job creation initiatives — Creating initiatives aimed at boosting job training programs to prepare workers for manufacturing jobs, including alliances between industry and educational institutions.

Possible federal tax policies that could impact manufacturing

The new administration has floated several tax policies, including extending the expiring 2017 Tax Cuts and Jobs Act (TCJA), restoring some business deductions, and exempting various income types from tax. His proposals include:

• Extending the TCJA — Enacted in 2017, the TCJA cut the corporate tax rate and provided a 20% deduction on qualified business income for many owners of privately held companies. Both provisions intended to encourage investment in domestic manufacturing by increasing after-tax profits.
• Further reduction of corporate tax rates — Further reducing the corporate tax rate to attract more manufacturers to operate domestically.
• Overtime pay — Exempting overtime pay from income taxes.
• Incentives for domestic production — Reinstituting the domestic production activities deduction at 28.5% to lower the effective corporate tax rate for domestic production to 15%.
• R&D expensing — Restoring the research and development expenditure deduction.
• Capital expenditures — Restoring the 100% bonus depreciation deduction.
• Business interest — Restoring the EBITDA-based interest limitation.
• Supply chain resilience incentives — Offering tax benefits for manufacturers that diversify their supply chains and reduce reliance on foreign sources.

How CLA can help with tax changes for manufacturers

It’s unknown at this point which of these policies might come to fruition as Congress would have to approve any tax changes and some of the proposed regulatory changes may also need congressional approval. A new administration will likely mean at least some changes and warrants consideration of multiple potential tax scenarios. CLA tax professionals can help you with proactive planning and scenario modeling to help you stay ahead of the curve regardless of where tax policy lands.