Biz coalition urges senators to keep interest deduction

A coalition of businesses is urging senators to keep the tax deduction for companies’ interest expenses as lawmakers seek recommendations from industry groups on how best to overhaul the tax code.

“To create a tax structure that fulfills America’s maximum growth potential, Congress must avoid any limitation to, or elimination of, interest deductibility,” the Businesses United for Interest and Loan Deductibility (BUILD) Coalition wrote in a letter Wednesday to members of the Senate Finance Committee.

The letter comes in response to a request for stakeholders’ tax reform recommendations that Finance Committee Chairman Orrin Hatch (R-Utah) issued in June.

{mosads}Tax reform is a top agenda item for congressional Republicans and the White House, and top lawmakers and administration officials are meeting regularly to work through their differences and produce a tax plan they can all support.

One tax issue where Republicans have been divided is the interest deduction. House Republicans proposed eliminating the deduction in the blueprint they released last year, but the administration would prefer to keep it. Hatch has said it would be difficult to eliminate the deduction.

The BUILD Coalition, whose members include businesses in the agriculture, manufacturing and telecommunications industries, said that if business interest can’t be deducted, companies’ taxable income would be overstated and the businesses would be overtaxed.

Supporters of eliminating the deduction argue that the tax code currently favors debt over equity. But the BUILD Coalition said that “the argument that equity and debt financing are similar is a fallacy.”

“Debt and equity do not serve identical purposes and are not interchangeable forms of financing,” the coalition wrote. “There are a variety of non-tax reasons that businesses like ours choose debt over equity when raising capital. Thus, their differing tax treatment is appropriate.”

The House GOP blueprint would allow businesses to immediately write off the full costs of their capital investments in lieu of being able to deduct their net interest expenses. But the BUILD Coalition said that full expensing isn’t an “acceptable alternative.”

“As businesses that make these financing decisions every day, we know firsthand that you can’t expense what you can’t afford,” the coalition wrote.

The BUILD Coalition also said that “numerous policy proposals” could be hurt by the elimination of the interest deduction.

Trump has called for $1 trillion in infrastructure investment spurred largely by public-private partnerships, and curbing the interest deduction “would undermine these plans by increasing the cost of capital and making such investments less feasible for the private sector,” the group said.