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NTU and Free-Market Coalition Applaud Treatment of Interest in House Tax Bill

by Pete Sepp / /

The Honorable Kevin Brady
Chairman, Committee on Ways and Means
1102 Longworth Office Building
Washington, D.C. 20515

Dear Chairman Brady:

On behalf of the members of the following organizations, we write today to express our strong support for the Tax Cuts and Jobs Act introduced on November 2nd. We applaud your efforts to prioritize tax reform in the 115th Congress and support efforts to modernize the tax code to promote economic growth and job creation. We greatly appreciate your leadership on tax reform, and we stand ready to work with you and your colleagues to ensure swift passage of your legislation in the days ahead.

In addition to the much-needed reduction in the corporate tax rate, we greatly appreciate the delicate balance that the Tax Cuts and Jobs Act achieves with respect to interest deductibility for businesses. As you know, access to affordable capital is a key determinant in whether and how quickly investments can be made to grow their businesses. Because debt is the most accessible and cost-efficient form of capital, it is important that businesses continue to be allowed to deduct interest as an ordinary and necessary business expense. 

Significantly, the House Tax Cuts and Jobs Act recognizes the importance of affordable capital by not proposing complete elimination of interest deductibility or a flat percentage "haircut" on the deduction. Adoption of a percentage haircut would overstate a corporation’s economic income, result in over-taxation, and increase the cost of capital. This would hamper the ability of many companies to invest and expand their businesses. We are supportive of the bill's carefully crafted 30% “thin-cap” rule, which strikes the right balance by preserving interest deductibility, but not rewarding overly leveraged companies. Indeed, capital-intensive companies that finance infrastructure investment through a combination of debt and equity will have a greater ability to maintain proposed levels of investment if limits on the deductibility of interest are imposed using a thin-cap rule.

We urge the Committee to remain committed to the thin cap approach to the interest deduction. Elimination of the deduction or an arbitrary haircut runs counter to a stated purpose of corporate tax reform – to make the U.S. system more competitive and more consistent with other countries. In contrast, adoption of a thin-cap rule as currently contemplated would not make the U.S. an outlier with respect to other countries, because a few countries, such as Germany, already impose thin-cap rules applicable to a company’s interest expense. 

We look forward to working with you and your colleagues to achieve the important goal of passing the House Tax Cuts and Jobs Act.

Sincerely,

Pete Sepp
President
National Taxpayers Union
 
Thomas A. Schatz
President
Council for Citizens Against Government Waste
 
David Williams
President
Taxpayer Protection Alliance
 
Charles Sauer
President
Market Institute
 
Tom Giovanetti
President
Institute for Policy Innovation
 
Jeff Mazzella
President
Center for Individual Freedom
 
Andrew Langer
President
Institute for Liberty
 
Bartlett Cleland
President
Madery Bridge