MBA, Trade Groups Take Business Interest Deduction Battle to Senate

Even as the House Ways and Means Committee approved a House Republican-led measure to rewrite the nation’s tax code, the Mortgage Bankers Association and a coalition of industry trade groups appealed to Senate leadership to ensure that a key provision–the ability for businesses to maintain full interest deductibility–remain intact in the Senate version.

The Ways and Means Committee, by a 24-16 vote Thursday, approved H.R. 1, the Tax Cut and Jobs Act, which revamps tax rates and cuts corporate tax rates, advancing the bill to the House floor for debate this week. With the Senate unveiling parts of its own tax plan on Thursday, the Business United for Interest and Loan Deductibility (BUILD) Coalition–an amalgamation of more than a dozen housing, real estate, construction and other interests of which MBA is a member sent a letter to Senate Finance Chairman Orrin Hatch, R-Nev., and the committee’s ranking member, Sen. Ron Wyden, D-Ore, stressing the importance of maintaining full interest deductibility.

“While our Coalition fully supports efforts to enact pro-growth tax reform, we want to reiterate the importance of maintaining full interest deductibility for all businesses in order to accomplish this objective,” the letter said. “In order to create a tax structure that unleashes America’s full growth potential, Congress must avoid any limitation to interest deductibility.”

The letter noted deductibility of business interest expense is a “well-established” component of the tax code that promotes economic growth. Businesses use it to float payroll in tough times and finance expansion. Interest expense is a normal cost of doing business, just like expenses for raw materials, office supplies and payroll, and its deduction has been present in the tax code since the implementation of the modern income tax structure nearly a century ago.

“Businesses of all sizes borrow in order to meet obligations, and the ability to deduct interest expense gives business owners the certainty to make critical operating decisions,” the letter said. “For many firms, access to credit is essential for working capital, and many of these businesses use debt to weather shifts in demand. Proposals that call for placing limits on interest deductibility run counter to lawmakers’ stated goal of achieving pro-growth tax reform.”

The letter noted in addition to having a negative impact on economic growth, limits to interest deductibility amount to a “harmful new tax” on businesses that borrow to invest and grow. To avoid this new tax, the Coalition said the appropriate solution is to maintain full interest deductibility for all businesses across all sectors.

“Finally, limiting interest deductibility threatens to harm American businesses’ competitiveness in the global economy,” the letter said. “America’s capital markets are second to none, giving the U.S. a major advantage over other nations in attracting businesses and investment. Should limitations to interest deductibility be more onerous than other countries, businesses may look overseas for their borrowing needs, weakening U.S. credit markets and hindering job growth.”

The Coalition said tax reform should offer permanent, pro-growth solutions for businesses, but the proposal in the House tax plan to limit interest deductibility undermines these goals. “Permanently limiting the deduction for interest expense while implementing a temporary shift to full expensing risks harming long-term economic growth and the certainty that businesses need to grow and create jobs,” it said.

The BUILD Coalition includes MBA; Abbott; American Gaming Association; American Investment Council; Association for Corporate Growth; Equipment Leasing and Finance Association; First Data; International Council of Shopping Centers; NAREIT; National Multifamily Housing Council; Owens-Illinois; Portland Cement; the Real Estate Roundtable; and S&P Global.