ACG Partner ‘BUILD’ Strives to Keep Essential Corporate Tax Provision

Putting restrictions on businesses’ ability to deduct interest paid on corporate debt would hamper economic growth, the BUILD Coalition, an ACG Global partner, asserted to national lawmakers on Thursday.

A letter submitted to the Senate Finance Committee from Businesses United for Interest and Loan Deductability said proposals “that call for placing limits on interest deductibility in order to achieve a lower tax rate for businesses run counter to the Committee’s stated goal of achieving pro-growth tax reform.”

The Association for Corporate Growth has been active in outreach to lawmakers in conjunction with the BUILD Coalition, conducting regular meetings with legislators and their staff in Congress, and meeting with the senior staff of the White House National Economic Council.

The ability to deduct interest paid on business debt, an essential component of the corporate tax code for nearly 100 years, would be repealed under the House GOP blueprint for tax reform. The plan would replace the deduction with the full and immediate expensing of capital expenditures. Debt is an important financing tool for companies of all size, but especially for small and midsize businesses.

The letter, covered in The Hill, a media site following Washington policy developments said, “The impact would be particularly harsh for startups, small businesses, and other private companies, which do not have ready access to alternative sources of financing. In fact, research has found that 75 percent of startups and 80 percent of small businesses rely on debt financing,” the letter said. It went on to illustrate the advantages debt financing has in terms of efficiency compared to equity. Debt financing allows companies to ensure they have the access to needed capital at a moment’s notice.

The letter, covered in The Hill, a media site following Washington policy developments said, “The impact would be particularly harsh for startups, small businesses, and other private companies, which do not have ready access to alternative sources of financing. In fact, research has found that 75 percent of startups and 80 percent of small businesses rely on debt financing,” the letter said. It went on to illustrate the advantages debt financing has in terms of efficiency compared to equity. Debt financing allows companies to ensure they have the access to needed capital at a moment’s notice.

According to research cited by BUILD in the letter, a limitation of interest deductibility to 25 percent would create a GDP decline of 0.2 percent over the long term, with much of the slow down occurring in the first ten years. The letter cites a study published by the St. Louis Federal Reserve authored by finance experts Brent Glover, Joao F. Gomes, and Amir Yaron which finds that limiting interest deductibility would actually increase economic volatility by raising the overall cost of accessing capital.

The Republicans’ proposed plan would replace the interest deduction with full and immediate expensing of capital costs, a move ACG and BUILD contend is not a fair tradeoff. If one cannot afford something in the first place, being able to fully expense it is of no help, they say.

In addition, BUILD said that equity financing of a business is not a viable alternative to debt because it dilutes control of the business by giving ownership to shareholders.

“Maintaining interest deductibility on corporate debt is of utmost importance in the current tax reform talks and a primary policy objective for ACG,” said Christine Melendes, VP, Public Policy, Strategic Events & Partnerships for ACG Global. “The Association for Corporate Growth and the BUILD Coalition are ensuring that this issue gets the attention it deserves so that tax reform can be pro-growth, and not anti-business.”