This week, the Association for Corporate Growth (ACG) held its 2017 Middle-Market Public Policy Summit, where lawmakers and business leaders met to discuss the new political landscape and how public policy can promote the growth of the middle market. One important topic that came up was interest deductibility (ID).
The middle market covers roughly 200,000 companies that each generate revenues between $10 million and $1 billion. Together, these companies provide 48 million jobs — nearly 40 percent of the American workforce. Being able to deduct business interest expenses is key to helping most of these companies raise capital, add jobs, and ultimately grow their operations.
In remarks at the ACG Summit, Senator Thom Tillis (R-NC) spoke of the need to provide companies with certainty as the tax reform process unfolds. He said this would help to encourage capital “to get off the sidelines” — a key component of the tax code overhaul desired by Americans.
But if Congress is serious about providing certainty for businesses to invest, then the current tax treatment of business interest expense must be maintained.
Indeed, by eliminating ID, as proposed in the Republican House Blueprint, Congress would be increasing the burden on companies by raising the cost of borrowing.
It would also fundamentally destabilize the U.S. business environment, as the modern U.S. tax code has always recognized interest expense as a normal — and therefore deductible — cost of doing business.
On top of that, removing ID would impact business competitiveness. Smaller, private companies rely on debt financing to raise capital, and don’t always have the option to tap equity markets.
All in all, the ACG Summit encouraged positive dialogue between business owners and their elected officials on the real life implications of tax reform.