The Bureau of Labor Statistics reported that Michigan had an unemployment rate of 8.8% in July, fifth highest in the entire country. In these tough economic times, businesses must be able to use debt in order to invest locally, expand their businesses, and create jobs.
As explained by Lew Dodak and Rick Johnson, former speakers of the Michigan House, Congress should not institute a new tax targeting interest on debt that will drive up the cost of capital for companies large and small. Interest deductibility has been a core component of the tax code for more than 100 years and must be preserved in full to help businesses grow.
Please read The Detroit News op-ed by Reps. Dodak & Johnson below:
Corporate Tax Reform Needed
Although Congress has recently returned from summer recess and has many issues to address, the business community, state and local governments, and other vested interests are not forgetting about corporate tax reform. Michigan’s own Congressman David Camp, R-Midland, is leading the charge in the House of Representatives to find bipartisan reform to which his lead counterpart in the Senate, Sen. Max Baucus, D-Montana, and President Obama can agree.
Businesses and elected officials agree that the United States needs tax reform. But we must be cautious that the reform implemented will truly benefit American companies, both large and small, and actually help to grow the economy.
One type of reform that the legislative and executive branches are considering as a way to pay for broader tax reform is limiting interest deductibility, or placing a new tax on interest accrued from debt. Those who own or operate a business are familiar with how companies use debt to finance operations and expand. Since using debt is part of operating a business, interest on this debt has been tax deductible for over 100 years.
Should Congress consider limiting interest deductibility as part of tax reform, every business will be impacted. Companies will have less capital, make fewer investments, and contribute less to economic welfare. Fewer jobs will be created and businesses may be forced to close their doors.
Ernst & Young research shows that over the long-term, limiting interest deductibility to finance lower rates will cause output to fall by 0.2 percent ($33.6 billion), investment to fall by 0.3 percent ($6 billion), and economic welfare to fall by 0.4 percent.
In Michigan, the long-run impact of limiting corporate interest deductibility will decrease the state GDP by $880 million. Non-business services, wholesale and retail trade, and manufacturing are among the industries that will be impacted most.
These numbers alone show that limiting interest deductibility will not end up helping to reform corporate tax for the betterment of all U.S. businesses and will severely impact economic development.
See how limiting interest deductibility impacts Michigan here.