Tax and Administrative Legislation Impacting Manufacturers

The Trump administration is proposing and implementing a wide range of new policies at a rapid pace. Many could have significant repercussions for U.S. manufacturers. Read on to learn about three of the most important areas to watch as the administration moves forward.

1. Tariffs and Trade Policies*

President Trump made tariffs a large part of his campaign. He promised to impose a baseline tariff of 10% on imported goods, with higher tariffs on imports from certain countries.

Since taking office, Trump’s enactment of tariffs is continuously evolving. The president originally shared the idea of across-the-board tariffs and announced his intention to pursue reciprocal tariffs on trading partners. Some tariffs have already kicked in while others have received temporary reprieves.  The status of these tariffs changes day to day based on talks with each of the individual countries varies on the final.

While it remains to be seen how the tariffs will eventually shake out in 2025, they could have a positive effect on U.S. manufacturers. For example, tariffs might protect them from cheaper imports, and manufacturers that compete with subsidized foreign manufacturers may benefit from reduced price competition.

On the other hand, manufacturers that rely on foreign-sourced raw materials may need to find alternative suppliers, either domestic or in countries not subject to tariffs. Those suppliers could raise their prices to equal or be just below those of suppliers affected by tariffs.

Bear in mind that retaliatory tariffs from other countries would make U.S. exporters less competitive. Moreover, tariffs are expected to fuel further inflation, with all the associated effects, including higher costs and flagging consumer demand.

*The status of federal tariffs is constantly changing impacting various sectors and international trade relations.  It is essential for manufacturers to stay updated on the latest developments to navigate how these changes will impact your business, trading partners, and vendors.

2. Tax Cuts and Jobs Act (TCJA)

Many provisions in the sweeping Tax Cuts and Jobs Act (TCJA) enacted during the first Trump administration are set to expire soon. The Republican-controlled Congress is working on legislation to extend or make permanent a variety of provisions relevant to manufacturers.

For example, under the TCJA, manufacturers can claim so-called bonus depreciation on purchases of new or used machinery, equipment, or computer systems. A manufacturer could deduct 100% of the purchase price of qualified property placed in service beginning Sept. 28, 2017, through 2022. The first-year bonus depreciation percentage has dropped to 40% for 2025, but it’s expected that new legislation will return it to 100%.

Also, the qualified business income (QBI) deduction allows business owners of pass-through entities to deduct up to 20% of their QBI. The deduction is currently scheduled to expire after 2025. That would mean the income would be taxed at owners’ individual income tax rates. However, it’s likely that Congress will extend the QBI deduction, or even make it permanent.

Note: Although the current individual tax rates, which top out at 37%, are set to return to their pre-TCJA levels in 2026 (with a maximum of 39.6%), they’re also expected to be extended by Congress. Corporate manufacturers should pay attention to possible changes in the corporate income tax rate. Trump campaigned on reducing the current 21% rate and eliminating the 15% corporate alternative minimum tax.

Lumsden McCormick hosted an educational webinar on February 12, 2025, highlighting the potential changes to the expiring provisions of the TCJA. The key topics discussed included the expiration of TCJA provisions, higher tax rates, changes in standard deduction and personal exemptions, return of certain deductions, the impact of the Alternative Minimum Tax (AMT), and retirement plan provisions and tax credits. View webinar recording and resources.

3. Clean Energy Tax Incentives

The Inflation Reduction Act (IRA), enacted under the Biden administration, created or expanded a variety of tax incentives encouraging renewable energy. They include tax credits for electric vehicles and residential clean energy improvements (for example, solar panels and heat pumps).

The IRA passed with no Republican support, however, and the GOP has had the law in its crosshairs ever since. On the campaign trail, Trump pledged to cut unspent funds allocated for the IRA’s tax incentives for clean energy projects. He has also indicated a desire to eliminate the tax breaks going forward.

These efforts face a hurdle, however. Many clean energy manufacturing projects that rely on the credits are planned or already underway in Republican congressional districts and swing states.

In August 2024, a group of Republican legislators sent a letter to Speaker of the House Mike Johnson, opposing a full repeal of the IRA. Other options include restricting the credits through tighter eligibility requirements.

Stay Informed

With widespread implications for manufacturers, federal legislation and tax laws are quickly changing and impacted by the political landscape. Staying informed about these developments is crucial for navigating the shifting landscape and maximizing opportunities.