Economic and business implications of the new tax act
To better understand the economic and business implications of the new tax act, NAFEM spoke with two leaders at the National Association of Manufacturing (NAM). Chad Moutray is NAM’s chief economist and Chris Netram is vice president of tax and domestic economic policy. Both are located at NAM headquarters in Washington, D.C.
Economic outlook for manufacturing
NAM and its members are extremely optimistic about the impact of tax reform on the economy. In a December 2017 survey, 94.6 percent of those who responded were positive about their company’s economic outlook, up nearly 5 percent over the previous survey in September. NAM members expected to see growth in all aspects of their business – production, capital investments, full-time employment and employee wages.
“Our members’ confidence is both an indicator of what is happening in the U.S., as well as in the global economy,” said economist Moutray. “The early indicators we expect to see as a result will be an increase in both investments and hiring, and some wage pressure.” NAM is currently surveying members to quantify these early indicators and capture anecdotal evidence of the benefits of the tax act on U.S. manufacturing.
Capex deduction expected to be a boost
A key provision of the tax act is the ability for companies to deduct 100 percent of the cost of equipment for five years. This provision then phases out incrementally over the next five years. Equally important is the fact that the new deduction applies to both new and used equipment, a boon to companies of all sizes that may prefer to invest in repurposed equipment.
“The tax reform bill lowers the corporate rate, creates a new deduction for pass-through manufacturers and contains strong incentives for capex – which is a key strategy for growing the economy,” said policy leader Netram. “However, businesses need to be aware of unfavorable provisions of the act that go into effect in later years, such as changing the deduction for R&D expenses to an amortizable item.”
Must prove benefits
Moutray and Netram said that the NAM continues to monitor what its members are doing as a result of tax reform. A large part of the push toward passage was the argument that reform would make U.S. manufacturers more globally competitive, allowing them to expand and hire more workers. As such, NAM is busy trying to quantify the impact the tax act has had and will have on the economy.
“Business leaders have said that they will benefit from tax reform, and we are working to determine what those true impacts are for the U.S. economy,” said Moutray.
“The next 18 months will be focused on implementing the new law and clarifying guidance,” said Netram. “The legislative process moved very quickly, and many businesses are still working to understand the details of the bill.”
NAM is manufacturing’s voice
NAFEM is a member of NAM’s Council of Manufacturing Associations. NAFEM members also can join NAM. As the largest manufacturing association in the United States, NAM represents manufacturers of all sizes, in every industrial sector, in all 50 states.
“We advocate for growing manufacturing in the U.S.,” said Moutray. “We always need the voices of more manufacturers at the table as we address the big issues of tax reform, trade, infrastructure and workforce.”