The top taxwriter in the House of Representatives claimed there’s strong support for limiting businesses’ ability to deduct interest expenses from taxable income, a measure that will be key to conservative plans for tax reform but is sure to invite major controversy.
Speaking to reporters Monday at the Capitol, House Ways and Means Committee Chairman Kevin Brady, R-Texas, expressed optimism about ending the deductibility of interest payments in talks with the administration and Senate over tax reform.
“I think we’re moving to a good place there,” he said.
The Texan cited “refinements” to the plan for ending interest deductibility, in particular grandfathering existing corporate debts, carving out exceptions for financial companies and small businesses, and allowing deductibility for purchases of land.
Ending the deductibility of interest payments for businesses would raise around $1.2 trillion over 10 years, according to an analysis of the House GOP blueprint for tax reform conducted by the nonprofit Tax Foundation.
Those revenues would be used to lower business tax rates and to allow companies to immediately write off the cost of all new investments.
“There is very strong support for full and immediate expensing,” said Brady, referring to the goal of allowing companies to write off new investments in the year they are made.
Under the current tax code, companies are only allowed to deduct those expenses over the course of years, according to a complicated schedule.
House Republicans and conservative tax experts argue full expensing will encourage companies to add more machines, buildings and other kinds of capital that drive economic growth.
However, a number of lobbies — especially in real estate, agriculture and telecommunications — strongly favor keeping the deduction and are lobbying to defend it.
In an interview with Fox Business Thursday, Senate Finance Committee Chairman Orrin Hatch, R-Utah, indicated an openness to reconsidering the deductibility of interest expenses, despite previously suggesting Congress might not go for it.
“Some people think that would be a tremendous move in the right direction, on both sides,” Hatch said. “I can see it one way, and I can see it the other way, too. These are tough issues. There’s nothing easy about tax reform.”
Treasury Secretary Steven Mnuchin has said he would prefer to keep the deductibility of interest payments.
