NAM fights to preserve interest deductibility
NAM is pushing back on planned and proposed tax changes that would limit tax deductions for interest on business loans and make it harder for manufacturers to invest in growth.
Why is this important: Debt financing is essential for the manufacturing industry as it allows businesses of all sizes to invest in equipment and facilities. These investments stimulate job growth and help manufacturers compete in the global market. Reducing or limiting the ability of manufacturers to deduct interest will make borrowing more expensive, making it more difficult for manufacturers to support the US economic recovery and invest in future growth.
Provisions: There are three proposed tax changes, including one that is due to come into effect at the end of this year and two proposed by the House Ways and Means Committee that have been proposed to help fund the Build Back Better program.
- A new EBIT standard: The 2017 tax reform law limited the deduction of business interest to 30% of profit before interest, taxes, depreciation and amortization. From 2022, the deduction will still be limited to 30% of profits before interest and taxes. Excluding depreciation and amortization would reduce the amount of interest that companies can deduct, making it more expensive for manufacturers to finance purchases of capital goods. NAM is leading the Coalition for America’s Interest to oppose change, and we are advocating for a bipartisan bill that would preserve the EBITDA standard.
- New limitation of interest deductibility: The House Ways and Means Committee’s Budget Reconciliation Bill includes a new limitation on interest deductibility. The bill would impose a global leverage test, prohibiting interest deductions in addition to the planned change in EBIT. In fact, companies affected by both this provision and the EBIT change would be required to comply with the more restrictive standard. This change would make the United States an outlier compared to other industrialized countries.
- New carryover restrictions: Manufacturers are currently allowed to carry over unused interest deductions to future years, ensuring they can deduct interest over time. The House bill would cap deferrals to five years, which could permanently prevent some interest deductions and ultimately result in a net tax increase for many businesses.
Speak : Overall, limiting interest deductibility makes it more costly for manufacturers to invest in growth, which is why NAM has vigorously opposed these changes.
“These planned and proposed changes to interest deductibility would have a disproportionate impact on companies in the manufacturing sector,” wrote Chris Netram, vice president of domestic fiscal and economic policy at NAM, in a letter to Congress. “After the adoption of the tax reform in 2017, manufacturing capital expenditure increased by 4.5% and 5.7% in 2018 and 2019, but limiting the deductibility of interest would threaten the progress of the sector and harm the ability of manufacturers to invest for the future. “