As discussed in my previous post, tax reform is a complex jigsaw puzzle where various groups compete to be heard. As these voices cross paths, the legislative process becomes more convoluted. Nowhere is this seen more than in the constant tug of war between Congress and special interest groups.
The influence of special interest groups on tax reform
As you can imagine, special interest groups play a significant role in shaping tax reform. We saw this back in 2017 when Congress drafted the Tax Cuts and Jobs Act (TCJA). Various groups from high-tax states lobbied against the state and local tax (SALT) cap, while nonprofit groups and the real estate industry campaigned against the higher standard deduction. Despite these efforts, Congress ultimately emerged victorious.
As the 2025 tax reform takes shape, special interest groups are hard at work trying to influence tax policy. These groups are diverse, ranging from large corporations and industry associations to nonprofit organizations. They use various tactics to sway members of Congress to enact or extend laws that align with their interests. These include lobbying, contributing to political candidates, conducting advocacy campaigns through advertising and social media, and providing expert testimony on tax reform.
NAM
Perhaps one of the biggest players in the 2025 tax reform debate is the National Association of Manufacturers (NAM), which represents 14,000 small and large manufacturing companies in every industrial sector. Last year, NAM wrote a letter to Congress outlining the TCJA provisions that benefited manufacturers the most. At the top of the list was the qualified business income (QBI) deduction. As expected, NAM urged Congress to make the deduction permanent “to prevent damaging tax increases on small businesses…”
NAM also identified the following priorities:
- Keeping the corporate tax rate low;
- Preventing individual tax rates from increasing to pre-2018 levels;
- Restoring immediate R&D expensing;
- Reinstating 100% bonus depreciation;
- Returning to an EBITDA standard for business interest deductibility;
- Preserving the increased estate tax exemption; and
- Preventing tax increases on globally engaged manufacturers.
As with most special interest groups, NAM is seeking to lower the tax burden on its members, arguing that extension or enhancement of the TCJA would lead to economic growth, job creation, and increased competitiveness. The group is warning Congress that if certain TCJA provisions are not extended, 1.1 million manufacturing jobs could be lost.
Public perception of special interest groups involved in tax policy
Of course, not everyone sees special interest groups as a good thing. Some argue that these groups skew tax policies in favor of a select few, which can lead to inequality and mistrust of the tax system. It reminds me of when engineers were specifically excluded from the definition of a specified service trade or business under the QBI provisions. When asked why, I would usually say they had good lobbyists. The perception that tax reform is driven by special interests rather than the public good can undermine the legitimacy of the legislative process.
As Congress confronts tax reform in the coming months, it will consider input from the various special interest groups. At times, this will be a political tug-of-war. The key to winning this war is finding a balance between serving the general public, protecting the government’s revenue stream, and appeasing special interest groups. Congress will soon find out how difficult a task this will be.
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