Middle-Market Public Policy Roundup

This week MMG was watching tax reform developments closely, including an amendment related to the treatment of interest deductibility, as the Senate bill inched closer to a vote, which was ultimately delayed on Thursday night.

Tax Woes

After delaying a Thursday night vote, Senate Republicans are still scrambling to find a way to raise enough revenue with their tax bill, Axios reports. A huge blow occurred on Thursday night, as the Senate parliamentarian decided that Sen. Bob Corker’s proposal—which would have raised taxes if the deficit was growing—wasn’t in line with budgeting procedure. Votes will continue through Friday, and any interested party can track proposed amendments and the bill’s status through the Senate Republican Policy Committee’s Tax Cuts and Jobs Act Reconciliation Tracker.

Interest Deductibility

Currently, the deduction of interest paid on corporate debt would limit the ability to deduct interest to 30 percent of earnings before interest and taxes, or EBIT.

The BUILD Coalition, in conjunction with ACG, Dell and other companies, wrote a letter to the Republican and Democratic Senate leadership this week detailing the effects of the limitation of the interest deduction. The letter said:

“The severe limitations to interest deductibility constitute a tax increase of more than $300 billion over the next 10 years, imposed on some of America’s most dynamic and innovative businesses, and reflect a fundamentally unfair and punitive reversal of roughly 100 years of established tax law. Excessive limits to interest deductibility not only amount to a harmful new tax on businesses that borrow to invest and grow, these provisions will weaken U.S. competitiveness, potentially raise prices on consumers, negatively impact capital expenditures, and put the job security of Americans in penalized industries at risk.”

Sens. Jim Inhofe and Roy Blunt have filed an amendment to allow for depreciation, amortization and depletion in computing adjusted taxable income for purposes of applying the limitation on the interest deduction. This would allow companies to deduct interest of 30 percent of EBITDA, versus EBIT. The BUILD Coalition issued a press release in favor of the amendment, saying:

“The BUILD Coalition strongly supports the amendments introduced by Senators James Inhofe (R-OK) and Roy Blunt (R-MO) to alter the limitations on interest deductibility included in the Senate’s Tax Cuts and Jobs Act. These amendments will promote growth and investment in the U.S. economy, as well as ensure tax reform does not disadvantage American businesses competing on the global stage.

We urge other lawmakers to support these amendments and are optimistic they will be included in the final version of the Tax Cuts and Jobs Act.”

Sens. Johnson and Daines Support the Tax Bill

Sen. Ron Johnson of Wisconsin and Sen. Steve Daines of Montana have come out in favor of the tax bill, The Wall Street Journal reports. Previously, both were not in full support due to concerns surrounding the treatment of pass-through entities, currently taxed at the individual rate. According to the WSJ, “Under an agreement reached with Senate Republican leaders, pass-throughs that qualify for the special treatment will now have a top rate of just under 30%.”

For continuing updates as they occur, we recommend you stay plugged into the WSJ’s live coverage of the tax bill.

Check back each Friday for the weekly Public Policy Roundup. Is there a policy issue you’d like us to cover? Send your suggestions to MMG Associate Editor Kathryn Mulligan at kmulligan@acg.org.