Over the past year, the Businesses United for Interest and Loan Deductibility (BUILD) Coalition, of which ACG is a proud member, has worked to ensure that 100 percent interest deductibility is maintained in the context of tax reform. The good news is that full interest deductibility is preserved in tax reform drafts from both former Sen. Max Baucus, D-Mont., and Rep. Dave Camp, R-Mich. The bad news is that neither Baucus’ nor Camp’s position on interest deductibility is guaranteed to be in the final tax reform bill. Instead, new chairs in House Ways and Means and Senate Finance will be holding the pen. In the Senate, Sen. Ron Wyden, D-Ore., whose 2007 tax reform draft imposed strong limits on interest deductibility, is the new chairman of the Senate Finance Committee.
Maintaining interest deductibility is critical to the U.S. economy. A recent study by EY’s Quantitative Economic and Statistics Group found that limiting interest deductibility to finance lower tax rates reduced long-run economic growth by $33 billion in 2013. The study shows that all industries and all states will see reductions in economic growth as a result of this ill-conceived policy. Moreover, given that access to credit is essential for American businesses and interest payments are a cost of doing business, full interest deductibility has been a core part of the modern tax code since its inception in 1921.
While the most recent drafts have continued this tradition, the political consensus is that neither plan will move forward this year. Baucus was just confirmed as the U.S. ambassador to China and has left his post in the Senate. Meanwhile, neither Republican leadership in the House nor Democratic leadership in the Senate has shown a desire to take tough votes and move on Camp’s draft this year. Therefore it is critical that business owners who understand the value of interest deductibility and its importance to our economy look toward the future.