BUILD Coalition Highlights Importance Of Interest Deductibility For Pro-Growth Tax Reform In Senate Finance Letter

WASHINGTON (September 19, 2017) – Today, the BUILD Coalition submitted a letter to the Senate Finance Committee outlining the need to maintain full interest deductibility for all American businesses. The submission highlights how businesses of all sizes and across all sectors rely on the ability to deduct interest expense to access capital that is critical for growth and job creation. The letter also demonstrates the harmful effects of limiting interest deductibility to finance a lower tax rate for businesses.

Below please find a few key references from the letter:

  • “The deductibility of business interest expense is a well-established, growth-promoting component of the tax code. Interest expense is a normal cost of doing business. The deduction for interest is necessary to measure income properly and has been present in the tax code since the implementation of the modern income tax structure roughly a century ago. Failure to maintain interest deductibility will overstate a business’ taxable income and result in over-taxation. By guaranteeing businesses will not be taxed on the cost of accessing capital, interest deductibility affords us the correct tax treatment and encourages us to continue to invest in growing our businesses and creating more jobs.”
  • “Proponents of eliminating interest deductibility argue that the tax code favors debt over equity, and that this encourages companies to take on more leverage. And yet, research by economists from Duke University, University of Pennsylvania, and Washington University in St. Louis, as well as findings by Nobel Prize-winning economist Merton Miller, show that the tax code has little to no impact on companies’ leverage ratios. Harvard University finance professor Mihir Desai confirmed the findings of these earlier studies, noting that the non-financial sector is “remarkably underlevered by historical standards.” We believe this is because corporate decisions regarding the level of debt to assume are impacted by numerous non-tax market forces, such as analysts, rating agencies, regulators, investors, and lenders.”
  • “Our experience managing the daily operations of our respective businesses compels us to relay the real-world implications of eliminating or limiting interest deductibility. It is also essential that we dispel misconceptions regarding this key part of our tax code, including the inaccurate notions that limiting interest deductibility to finance a lower tax rate for businesses would result in economic growth, that the interest expense deduction distorts financing decisions, that interest deductibility can be replaced by immediate expensing of capital expenditures, and that interest deductibility encourages excessive risk in the economy.”

Read the full letter here.

By | 2017-09-27T16:48:28+00:00 September 19th, 2017|Blog, News|