SIFMA Views on Tax Reform
This paper summarizes SIFMA’s current views on selected tax policy issues in the context of tax reform and is in response to the request for stakeholder comments on tax reform that was issued on June 16, 2017 by Senate Finance Committee Chairman Orrin Hatch (R-UT).
Related:
Corporate Dividend and Capital Gains Taxation: A comparison of the United States to other developed nations (PDF, April 2015) – Analysis by Ernst & Young for the Alliance for Savings & Investment (ASI) found that for 2014, the U.S integrated tax rate on corporate profits are among the highest in developed nations.
Excerpt
Taxation of Interest
Discussions surrounding comprehensive tax reform often include some consideration of the tax treatment of interest income and expense. Over the years, several tax reform plans have incorporated proposals to limit the deductibility of business interest expense, including as a means to help pay for reductions to the corporate tax rate. Some examples include — the business tax reform framework released by the Obama Administration in early 2012, the Obama Administration’s FY2016 budget proposal to limit the net interest expense deduction of a U.S. corporate taxpayer that is a member of a worldwide consolidated group, the comprehensive income tax reform bill introduced by Sens. Ron Wyden (D-OR) and Dan Coats (R-IN) in the 112th Congress and, most recently, the June 2016 House Republican Blueprint for Comprehensive Tax Reform, which proposed repealing the deduction for net interest expense.
SIFMA generally opposes broad proposals to limit the deductibility of interest for business taxpayers. If such a proposal does move forward, however, it is imperative that any limitation be applied to net, rather than gross, interest expense. Specifically, net interest expense is the excess of interest expense over interest income. Moreover, as discussed further below, it is critical that application of the net interest proposal take into account those financial institutions that fund themselves with debt but which earn income that is not always interest in form. Finally, it is important that any such proposal reflect the structure of most financial institutions, and thus impose limitations on a group-wide rather than an entity-by-entity basis.
It has been a long-standing principle, dating back to the inception of the corporate income tax, that businesses are entitled to claim a deduction for their interest expense as a cost of doing business. Limiting the deductibility of interest expense would run counter to that fundamental tenet of our tax system. The consequences to businesses, their owners and employees, and the markets as a whole could be highly disruptive. In light of these consequences, it is critical that policymakers plan to adopt appropriate transition rules that preserve investors’ settled expectations to the greatest extent possible.