ONSHORE Manufacturing Act
- Sponsor
- Sen. Blackburn, Marsha [R-TN]
- Committees
- Finance Committee (primary)
- Last action
- Jul 15, 2026
Bottom line
The ONSHORE Manufacturing Act seeks to bolster U.S. national security and public health preparedness by offering significant tax incentives to reshore and expand the domestic production of essential medical products and the equipment needed to make them.
What it actually does
This bill amends the Internal Revenue Code of 1986 to establish three new tax credits aimed at incentivizing the domestic manufacturing of critical medical supplies and drugs. These credits include a direct income tax credit for qualified manufacturing, an investment tax credit for advanced medical manufacturing equipment, and an investment tax credit for environmental compliance property used in medical manufacturing.
Proponents argue
Supporters argue that this bill is a crucial step to reduce America's dangerous over-reliance on foreign supply chains for life-saving medicines and medical devices. They contend it will create high-quality domestic jobs, strengthen the U.S. manufacturing base, and ensure a reliable supply of critical healthcare products, especially during future public health emergencies.
Opponents contend
Critics might argue that the proposed tax credits represent a costly corporate handout that could significantly increase the national debt without guaranteeing lower prices or improved access for consumers. They may also contend that such incentives could distort market forces and potentially lead to trade disputes with other nations.
The bill is relatively concise and clearly structured, allowing an informed reader to grasp its core provisions and implications within a reasonable timeframe.
Section 2(a), adding new section 45BB to the Internal Revenue Code
Domestic Medical and Drug Manufacturing Credit
This provision establishes a new general business tax credit equal to 10.5% of a taxpayer's qualified domestic medical and drug manufacturing income. The credit is capped at 50% of the taxpayer's W-2 wages for the taxable year. It defines 'specified medical product' to include essential medicines, critical medical devices, active pharmaceutical ingredients, and covered countermeasures that are manufactured in whole or in significant part within the United States, as identified on various government lists.
Supporters argue
Supporters argue this credit directly incentivizes companies to manufacture essential medical products within the U.S., significantly reducing reliance on foreign supply chains and bolstering national preparedness for health crises. It is seen as a vital tool for supporting American jobs and economic security in a critical sector.
Critics contend
Critics might contend that this credit could be costly to taxpayers, potentially benefiting large corporations without guaranteeing lower prices or improved access for consumers. They may also argue it is an inefficient way to achieve supply chain resilience compared to direct government investment or procurement policies.
Tradeoffs
The provision balances the goal of enhancing national security and domestic job creation against potential costs to the federal budget and the risk of market distortions by favoring specific industries.
Section 3(a), adding new section 48F to the Internal Revenue Code
Qualifying Advanced Medical Manufacturing Equipment Credit
This section establishes a new investment tax credit for qualifying advanced medical manufacturing equipment. The credit is 30% for equipment placed in service before January 1, 2031, phasing down to 20% in 2031, 10% in 2032, and 0% thereafter. To qualify, the equipment must be machinery designed and used to manufacture a 'specified medical product,' identified by the Secretary (in consultation with HHS) as incorporating novel technology or improving product quality, addressing shortages, and speeding time-to-market.
Section 4(a), adding new section 48G to the Internal Revenue Code
Medical Manufacturing EPA Compliance Credit
This provision establishes a new investment tax credit for property used by medical manufacturers to meet emissions limits under the Clean Air Act or wastewater standards under the Clean Water Act. Similar to the advanced equipment credit, it offers a 30% credit for property placed in service before 2031, phasing down to 20% in 2031, 10% in 2032, and 0% thereafter. This credit is specifically for environmental compliance property and excludes equipment eligible for the advanced manufacturing credit.
Section 5
Annual Reports to Congress Regarding Supply Chain Resiliency
This section mandates annual reports to Congress, beginning in calendar year 2027, from several federal agencies. The IRS will report on the utilization of the new tax credits. The Department of Veterans Affairs and Department of Defense will report on the credits' impact on compliance with 'Buy American Act' procurement for domestically manufactured medical products. The Food and Drug Administration will report on the credits' impact on drug and device shortages.
The definition of 'specified medical product' relies heavily on external lists maintained by the Commissioner of Food and Drugs, Secretary of Defense, and Secretary of Health and Human Services, as well as the Department of Defense Joint Deployment Formulary and Defense Logistics Agency lists.
Section 2(c)(4)(B) (new IRC Sec. 45BB(c)(4)(B))
Why it matters:This is standard legislative practice to avoid codifying lengthy lists directly into statute and to allow for flexibility as needs change. However, it means the precise scope of eligible products can change without further congressional action.
Case for: Tying eligibility to existing, regularly updated lists ensures the credits remain relevant to current national priorities and medical needs without requiring constant legislative amendments.
Case against: The reliance on external lists means the scope of the tax credit is subject to executive discretion, potentially leading to uncertainty for manufacturers or political influence over list composition.
Estimated impact: The scope of eligible products directly determines the universe of manufacturers and products that can benefit from the credit, significantly impacting its overall fiscal cost and effectiveness.
The definition of 'W-2 wages' for the purpose of limiting the domestic medical and drug manufacturing credit explicitly excludes any amount 'which is not properly allocable to domestic medical and drug manufacturing gross receipts'.
Section 2(b)(2)(B) (new IRC Sec. 45BB(b)(2)(B))
Why it matters:This is a technical detail common in tax legislation to ensure that only wages directly related to the incentivized activity are considered. It's standard practice but adds complexity.
Case for: This ensures that the credit is precisely targeted to incentivize domestic medical and drug manufacturing, preventing companies from claiming the credit based on wages for unrelated activities.
Case against: Determining what is 'properly allocable' can be a complex accounting exercise, potentially leading to disputes between taxpayers and the IRS and increasing administrative burden for businesses.
Estimated impact: This allocation rule directly impacts the maximum credit amount a taxpayer can claim, potentially reducing the benefit for companies with diverse operations.
The term 'expanded affiliated group' for purposes of the domestic medical and drug manufacturing credit means an affiliated group as defined in section 1504(a), but by substituting 'more than 50 percent' for 'at least 80 percent' and disregarding certain exclusions.
Section 2(d)(3)(B) (new IRC Sec. 45BB(d)(3)(B))
Why it matters:This is a technical amendment to existing tax law, common in legislation that applies to corporate groups. It's standard practice but has significant implications for corporate structure and credit allocation.
Case for: Broadening the definition of an affiliated group ensures that related entities are treated as a single taxpayer for credit purposes, preventing artificial separation to maximize credits and simplifying administration for complex corporate structures.
Case against: Critics might argue that such a broad definition could inadvertently include entities that are not truly integrated in their manufacturing operations, leading to unintended consequences for credit allocation.
Estimated impact: This rule determines how the credit is calculated and allocated among related corporate entities, potentially impacting the total credit claimed by large corporate groups.
For purposes of determining the cost of goods sold, any item or service brought into the United States is treated as acquired by purchase, and its cost is not less than its value immediately after it entered the United States. A special rule applies for property exported for further manufacture.
Section 2(c)(3) (new IRC Sec. 45BB(c)(3))
Why it matters:This is a technical provision designed to prevent manipulation of costs for tax credit purposes, particularly concerning imported components. It's a standard anti-abuse measure in tax law.
Case for: This rule prevents taxpayers from artificially inflating the 'cost of goods sold' for domestically manufactured products by undervaluing imported components, ensuring the credit accurately reflects domestic value-add.
Case against: The valuation of imported items 'immediately after it entered the United States' can be subjective and complex, potentially leading to compliance challenges and disputes.
Estimated impact: This rule directly affects the calculation of 'qualified medical and drug manufacturing income' and thus the amount of the credit, especially for manufacturers relying on imported raw materials or components.
The qualifying advanced medical manufacturing equipment credit and the medical manufacturing EPA compliance credit both have a clear phase-out schedule: 30% before 2031, 20% in 2031, 10% in 2032, and 0% after December 31, 2032.
Sections 3(b) and 4(b) (new IRC Sec. 48F(b) and 48G(b))
Why it matters:This is a standard legislative technique to provide a temporary incentive and then sunset it, often to limit long-term fiscal impact or to encourage rapid adoption. It's transparent but requires careful reading.
Case for: The phase-out encourages immediate investment in advanced equipment and environmental compliance, providing a strong, time-limited incentive to quickly upgrade domestic manufacturing capabilities.
Case against: The temporary nature of the credits might deter long-term strategic planning or significant capital investments that require a longer return on investment, potentially limiting sustained growth.
Estimated impact: The phase-out significantly limits the long-term fiscal cost of these two credits and dictates the window during which manufacturers can maximize their benefits.