Key Takeaways
- The ‘One Big, Beautiful Bill’ included several tax changes that could help spur investments in U.S. manufacturing.
- The provisions included breaks for research and development investments, equipment purchases and factory construction, as well as increased tax incentives for domestic semiconductor manufacturing.
- Big Tech and AI firms, biotechnology companies, and industrial machinery makers are among the industries expected to receive the biggest boost from the comprehensive budget legislation.
The manufacturing sector is set to get a big boost from President Donald Trump’s “One Big, Beautiful Bill,” which is likely to spur new waves of investment, especially in sectors like AI and biotechnology.
The sprawling budget bill introduces a series of tax deductions and credits for businesses, especially those that invest inresearch and development (R&D), AI buildouts, and domestic factory construction.
“Likely beneficiaries of the law include industrial machinery manufacturers, heating and ventilation system providers, pharmaceutical innovators, semiconductor companies and major technology firms,” wrote Matt Hochstetler, equity portfolio manager at Capital Group.
Bigger Up-Front Tax Breaks to Create Cash Flow
One of the bill’s main provisions benefiting manufacturing is a change to how quickly companies can claim tax breaks on investments in equipment, facilities, and production lines. The bill now lets companies deduct 100% of their investment in “qualified production property” in the year it’s paid for instead of spreading the deduction over several years.
“This measure could become a powerful tailwind for free cash flow and spur fresh waves of investment across multiple sectors, assuming overall debt levels don’t drive interest rates too high,” Hochstetler wrote.
Because both the factory itself and the machinery inside can be deducted immediately, some analysts said this could incentivize companies to build more of their supply chains in the U.S.
“This ‘reshoring super-deduction’ dramatically lowers the after-tax cost of domestic investment. This should encourage the onshoring of supply chains and manufacturing capacity and create more jobs for Americans,” wrote Brownstone Research Senior Analyst Nick Rokke.
AI Will Be A Big Winner
The bill offers immediate deductions for investments made into research and development, including retroactively from 2022. The bill also boosts the tax credit for semiconductor production to 35% from 25% previously.
Together, these changes could provide a boon for AI production in the U.S., especially amid a surge in data center construction by companies like Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), and Meta Platforms (META).
“With new data center costs reaching into the tens of billions of dollars, the short-term tax savings are enormous,” Rokke wrote. “This change alone frees up billions in cash flow for the hyperscalers. And that cash will almost certainly be reinvested into even more compute infrastructure.”
Smaller Factories Get a Leg Up
Another provision that could benefit manufacturers is the restoration of deductions based on earnings before interest, taxes, depreciation, and amortization, or EBITDA.
The Association of Manufacturing Technology (AMT) said this would allow for greater deductibility of interest expenses related to financing investments, acquisitions and expansions. The group also pointed to higher expensing limits for small businesses, which it said would allow for larger equipment purchases.
“This change dramatically increases the ability of small manufacturers to invest upfront in critical assets, leveling the playing field against larger competitors,” wrote Amber Thomas, AMT vice president of advocacy.
An increase in the estate tax exemption is another benefit for small business owners, AMT pointed out. That provision could help family-owned manufacturing businesses pass on ownership without facing burdensome taxes.
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