American Industrial Policy Should Start with No More Self-Inflicted Tax Wounds
U.S. industrial-policy efforts frequently undermine themselves through counterproductive tax regulations, creating a paradox that hinders genuine investment and economic growth. Policymakers have committed substantial resources and political capital toward reshoring domestic manufacturing, upgrading national infrastructure, and enhancing American economic competitiveness. Indeed, these goals have been central to the Trump administration’s stated economic priorities. Yet despite these intentions, poorly structured tax policies simultaneously create substantial barriers to investment, growth, and global competitiveness.
Nowhere is this contradiction more evident than in the recent shift in business-interest-deduction rules under Section 163(j) of the Internal Revenue Code contained in the Tax Cuts and Jobs Act of 2017 (TCJA). The move from an EBITDA-based standard—which allowed companies to deduct interest payments calculated from earnings before interest, taxes, depreciation, and amortization—to an EBIT-based standard has severely restricted allowable deductions, dramatically raising the cost of debt-financed investments.