Buying American Cotton Act of 2026
- Sponsor
- Rep. Murphy, Gregory F. [R-NC-3]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jan 22, 2026
Bottom line
The "Buying American Cotton Act of 2026" creates a new transferable tax credit to boost domestic cotton consumption and ensure supply chain transparency for U.S.-grown cotton products.
What it actually does
This bill establishes a new domestic cotton consumption tax credit under the Internal Revenue Code of 1986. It aims to incentivize the use of U.S.-grown cotton in finished products sold to consumers by providing a credit to the first seller of an eligible article made from "qualified cotton." The credit amount is calculated based on the volume of qualified cotton, an applicable percentage (24% or 18% depending on processing location), and the average market price of cotton. The bill also includes provisions for increased credits for qualified cotton yarn and fabric, and mandates a digital tracing system to verify the cotton's origin and movement through the supply chain.
Proponents argue
Supporters argue that this credit will strengthen the domestic cotton industry, from growers to textile manufacturers, by creating a direct financial incentive for companies to use U.S.-origin cotton. They contend it will enhance supply chain security, promote American jobs, and ensure consumers can purchase products with verifiable domestic content. The digital tracing requirement is seen as a crucial mechanism to prevent fraud and ensure the integrity of the "Made in USA" claim for cotton products.
Opponents contend
Critics might argue that this tax credit constitutes a subsidy that distorts market forces, potentially leading to higher prices for consumers or disadvantaging foreign cotton producers and textile manufacturers who rely on imported cotton. They may also raise concerns about the administrative burden and cost of establishing and maintaining the digital tracing system, as well as the potential for trade disputes if the credit is perceived as an unfair trade practice by international partners.
The bill is relatively short but contains technical definitions and tax code amendments that require careful reading to fully grasp its implications.
Section 2(b), new Section 45BB(a)
Establishment of Domestic Cotton Consumption Credit
This provision creates a new tax credit for businesses that sell eligible articles containing U.S.-grown cotton. The credit is calculated by multiplying the documented volume of qualified cotton in the article, an applicable percentage (either 24% or 18%), and the average market price of cotton. This directly incentivizes the use of domestic cotton in finished goods.
Supporters argue
Supporters argue this credit directly stimulates demand for U.S. cotton, supporting American farmers and textile jobs.
Critics contend
Critics might argue this is a market distortion that could lead to higher prices or reduced competitiveness for non-U.S. cotton.
Tradeoffs
Balances supporting domestic industry with potential market distortions and administrative costs.
Section 2(b), new Section 45BB(c)(2)
Definition of "Qualified Cotton" and Digital Tracing Requirement
This section defines "qualified cotton" as extra long staple or upland cotton grown in the United States. Crucially, it requires this cotton to have a permanent bale identification number or other proof of U.S. origin, and its movement and volume must be digitally traced through the entire supply chain until it becomes an eligible article.
Section 2(b), new Section 45BB(b)(2)
Differentiated Credit Percentage
The bill sets two different credit percentages: 24% for cotton processed entirely in the U.S. or in countries with which the U.S. has a free trade agreement or unilateral preference program, and 18% for cotton processed in any country without such agreements. This incentivizes processing in allied or domestic locations.
Section 2(b), new Section 45BB(d)
Enhanced Credit for Intermediate Products
This provision allows taxpayers to elect an increased credit for eligible articles composed of qualified cotton yarn (1.6 times the base credit) or qualified cotton fabric (6.5 times the base credit). This aims to provide stronger incentives for domestic production of these intermediate textile products, not just the final consumer good.
Section 2(d), amending Section 6418(f)(1)(A)
Credit Transferability
The bill amends the Internal Revenue Code to make the domestic cotton consumption credit transferable. This means that a taxpayer who earns the credit but cannot fully utilize it due to insufficient tax liability can sell the credit to another taxpayer, allowing broader access to the incentive.
Defines "final condition" for an eligible article as its physical state when presented for sale or sold for immediate resale to a consumer, explicitly excluding de minimis augmentations (like graphics or adornment) and packaging.
Section 2(b), new Section 45BB(c)(1)(C)
Why it matters:This level of detail is common in tax code definitions to prevent ambiguity and potential loopholes, ensuring consistent application of the credit.
Case for: Ensures clarity on when a product qualifies as "final" for the credit, preventing claims on partially finished goods and simplifying administration.
Case against: Could be seen as overly prescriptive, potentially excluding innovative product presentations or requiring specific manufacturing steps to align with the definition.
Estimated impact: Clarifies eligibility, potentially affecting a small percentage of edge cases in product definition.
Explicitly excludes the WTO Agreement, agreements specified in 101(d) of the Uruguay Round Agreements Act, and any other multilateral agreement of the WTO from the definition of "free trade agreement" for the purpose of the applicable percentage calculation.
Section 2(b), new Section 45BB(c)(3)(B)
Why it matters:This is a technical carve-out to ensure the preferential 24% credit only applies to specific bilateral or regional FTAs, not broader multilateral trade frameworks, aligning with the bill's intent to favor specific trade relationships.
Case for: Supporters would argue this ensures the credit's benefits are targeted to countries with specific, comprehensive bilateral trade agreements with the U.S., reinforcing those relationships.
Case against: Critics might argue it adds unnecessary complexity and could be seen as discriminatory against countries operating under broader WTO rules but without specific bilateral FTAs.
Estimated impact: Narrows the scope of countries eligible for the higher 24% credit, potentially impacting sourcing decisions for manufacturers.