Lawmakers Slam “Harebrained” Plan To Eliminate Interest Deductibility

The BUILD Coalition has long warned about the severe impact on businesses of all sizes and from all sectors if the business interest deduction (ID) is eliminated. Lawmakers’ growing concerns with the idea was apparent during a recent House Agriculture Committee hearing on tax reform.

Credit financing plays a key role in agriculture—supporting daily operations, covering production inputs for future seasons, and providing a buffer to cash shortfalls throughout the year. As a legitimate business expense, interest paid on these loans is deductible.

Like other sectors that rely on credit to operate and grow, the elimination of ID poses disastrous consequences for America’s farming community.

As Committee Chairman Conaway (R-TX) noted in his statement to kick off the hearing, “Agriculture is an industry of high fixed costs, lead times that last an entire growing season or longer, and highly variable returns combined with historically very tight margins. As a result, managing tax liability is of paramount importance.”

The House GOP Blueprint proposes replacing ID with full and immediate expensing, but as Ranking Member Rep. Collin Peterson pointed out in his opening remarks, “I’ve got some real questions about that in terms of what it’s going to do for agriculture. I think we need to be careful.”

Ohio congressman Bob Gibbs was even more blunt in his assessment of the harsh tax burdens that would be imposed on farmers by the elimination of ID.

“This notion to do away with interest deduction is ludicrous,” he said. “I can’t understand why anybody came up with that idea to do away with what is a legitimate deduction.”

Appearing before the committee was Patricia Wolff, senior director at the American Farm Bureau Federation, and she stressed in her testimony to lawmakers that “an important thing to remember about agriculture is it is almost completely debt financed.” she said.

Another witness at the hearing Chris Hesse, principal and CPA at CliftonLarsonAllen LLP, warned in his statement that trading interest deductibility for full capital expensing “isn’t a benefit for agriculture.”

One of the misguided notions behind the proposal to eliminate ID is to push more businesses to tap equity financing. However, equity financing is not a realistic option for most agri-businesses given the structure and volatility of the farm business. “It’s especially true for younger farms and younger farmers who aren’t established enough to cash flow their own operations,” Rep. Kristi Noem (D-MN) said.

Moreover, like other small businesses, farmers with annual revenue below $500,000 already have access to immediate expensing under Section 179 of the tax code, so for them the blow from eliminating ID would not be cushioned.

As Rep. Steve King (R-IA) put it during the hearing, “You can put on the books that I think it’s a hair-brained idea to eliminate interest deduction.”

By | 2017-09-05T18:54:04+00:00 April 6th, 2017|News|