By Dan Janka, President of Mazak Corporation
December 20, 2024 – There is a refreshing sense of optimism and enthusiasm for the new year permeating the manufacturing industry, in particular among job shops. While a number of projects were put on hold in 2024, many are now back in these shops’ production plans for 2025 mainly because of pro-growth and pro-manufacturing policies expected to materialize in the new year.
Also contributing to the optimism and enthusiasm, a large number of OEMs are increasingly reshoring work back to the U.S. This is because of supply chain disruptions stemming from Covid coupled with ongoing global tensions. Both of which compound the risks and vulnerability involved with off- shore manufacturing. Onshore production will also benefit from continued direct foreign investment in the U.S. manufacturing sector.
Many shops held off on capital investments in 2024, mainly because of concerns over the potential elimination of the 2017 tax cuts, a lowering and possible elimination of the accelerated depreciation rate and high interest rates. Combined, those three factors equate to a significant loss of cash flow, especially for small mom-and-pop shops.
Because a lot of job shops are family-owned enterprises structured as limited liability companies (LLCs), they are taxed as an ordinary individual’s income. Any increased tax burden for upper income individuals would, in turn, impact these shops and shift them into higher tax brackets. This would eliminate their ability to invest in new capital. With the incoming administration, most experts believe the 2017 tax cuts will remain in place and become permanent.
Besides tax issues, there was concern surrounding Bonus Depreciation – additional first-year depreciation allowed by the Internal Revenue Service on qualifying business property beyond normal appreciation allowances. Bonus Depreciation decreased to 80% in 2023 from 100% in 2017 and was reduced in 2024 to 60%. Though the allowance is scheduled to decrease yearly to 0% in 2027, some feel the rate may return to 100% in 2025.