The failure of Congress to include key tax extenders in the omnibus government funding bill for fiscal year 2023, signed into law in late December 2022, is causing the federal income tax bill for most U.S. businesses, including American metalcasters and their suppliers, to rise significantly. Substantial tax law changes embedded in the 2017 Tax Cuts and Jobs Act (TCJA) are impacting the 2022 and 2023 taxable years. 

The 2017 tax reform law has provided foundries with greater opportunities to reinvest in their operations and employees. Rolling back and sunsetting these pro-growth tax provisions slows the economy and makes investments in America more expensive compared to our foreign counterparts. 

Due to the limited majority Republicans held at the time the TCJA was debated, it could only be passed via a budget reconciliation process, which requires only a simple majority. Under the budget reconciliation process, a bill cannot increase the deficit beyond a 10-year budget window. Therefore, the TCJA includes various sunset provisions or set expiration dates for many of the individual income tax legislation benefits.

Provisions related to research and development (R&D) expenses, business interest, estate tax, and accounting for physical purchases including equipment, are high on AFS’ list to preserve and make permanent. Congress can provide much needed relief and certainty for metalcasters by working to reverse the harmful changes to the tax treatment of the following key provisions:

• Bonus Depreciation—The TCJA provided 100% expensing for investments of capital costs on eligible equipment purchases and software in the year the investment is made rather than spreading the costs out over several years. Unfortunately, the policy begins phasing out by 20% this year and ratchets down thereafter, until it is eliminated by 2027. Full expensing gives metalcasters a 0% effective rate on new investments, which incentivizes more capital flowing in the economy. AFS supports the Accelerate Long-term Investment Growth Now (ALIGN) Act (H.R. 2406 / S. 1117) which makes permanent full and immediate expensing for American investments in machinery, equipment, and software.

• Small Business Deduction (Section 199A) for Pass-Through Businesses—Another of the TCJA’s important provisions set to expire after 2025 is the Small Business Deduction, a federal tax deduction that allows small businesses organized as pass-through entities like S-Corporations, Sole Proprietorships, or Partnerships to deduct up to 20% of their qualified business income from their taxes. Metalcasters have benefited from this tax cut, using the funds from their deduction to invest in employees, benefits, and their businesses. Metalcasters structured as pass-through entities would face a competitive disadvantage to companies organized as C-Corporations, without this deduction. The Main Street Tax Certainty Act, expected to be re-introduced in both the House and Senate in April, would make the Small Business Deduction and its benefits permanent.

• Restore R&D Tax Credits—For nearly 70 years the tax code has allowed businesses to fully deduct their R&D expenses in the same year. Under TCJA, starting in 2022 companies are now required to deduct their R&D investments over a five-year period, putting metalcasters and their customers at a serious competitive disadvantage. The U.S. is now one of two developed countries requiring the amortization of R&D expenses. Meanwhile, China provides a 200% super deduction for its manufacturers’ research. AFS supports the American Innovation and Jobs Act (S. 866) which would restore the immediate deductibility of R&D expenses. 

• Estate Tax—Since many foundries are family-owned, they must plan for the estate tax if they want to keep the business operating after the death or retirement of the owner. Permanent repeal of the estate tax would keep family-owned foundries operating for future generations. While TCJA did not eliminate the death tax, the law reduced its impacts by doubling the individual estate and gift tax exclusion to $10 million ($12.9 million in 2023 terms) through 2025. As this provision nears expiration, AFS supports the Death Tax Repeal Act (S. 1108), legislation to eliminate the federal estate tax.

Many lawmakers have indicated a desire to implement certain tax extenders in the 2023 taxable year; however, Democrats are holding firm that they will not engage in serious discussions on extenders without an expanded child tax credit. 
AFS remains active and diligent in pressing to maintain a competitive tax environment for metalcasters. Tax increases undermines our ability to compete internationally, invest in new equipment, and increase wages for employees. During the AFS Government Affairs Fly-In to be held June 20-21 in Washington, D.C., members will meet with their U.S. Representatives and Senators to advocate on these tax matters and other critical industry policy priorities. Join us in Washington, D.C. and make your voice heard.

Visit www.afsinc.org/conferences/2023-government-affairs-fly for more information.  

Click here to view the column in the May 2023 Modern Casting digital edition.