On March 7, 2024, President Biden delivered his third State of the Union (SOTU) address. He submitted his Fiscal Year 2025 budget to Congress days later. The speech and the budget outline the president’s plan for the coming year and lay out a framework of what he wants to accomplish should he win a second term. There could be significant ramifications for manufacturers. In his speech, Biden held up manufacturing job growth over the last three years as an administration success story and vowed to continue to focus on investing in “American products built by American workers creating good-paying American jobs.” He touted a record 16 million Americans starting small businesses. Yet when the FY2025 budget was released, it topped $7.3 trillion and included nearly $5 trillion in new taxes on businesses and high earners. The FY2025 budget also includes:
Increasing corporate tax rate from 21% to 28%
Quadrupling the 1% surcharge on stock buybacks
Denying tax deductions on executive pay for salaries over $1 million
Doubling the corporate minimum tax from 10.5% to 21% to be compliant with the Biden-backed global tax agreement that more than 130 countries have committed
Changing capital gains and estate tax rules that could negatively impact small family-owned manufacturers and
No mention of extending expensing for capital equipment and R&D costs — AMT’s top advocacy priority.
In aggregate, the corporate tax rate would rise about 10%. The cost of manufacturing in the United States already averages 40% higher than in China and 10% higher than in other developed countries. Achieving an acceptable after-tax return on capital investment required for U.S. reshoring and foreign direct investment (FDI) is difficult. Adding to our current cost problem, the disadvantage of being one of the most highly taxed developed countries will severely hurt U.S. competitiveness. Instead, the tax system should focus on making the U.S. the most profitable country for companies to locate manufacturing.
It is important to note that the SOTU and annual budgets are policy statements rather than concrete initiatives. The president’s proposed tax increases will certainly not fly in the GOP-controlled House. However, taxes will be a top issue for whoever wins in November, as the 2017 tax cuts expire in 2025.
