Trump tax framework targets interest deductibility

  • The plan would partially eliminate interest deductibility
  • Corporate tax rate falls to 20 pct
  • Plan includes full expensing of major capital expenditures

The framework of President Donald Trump’s plan for tax reform would eliminate at least some of the ability of companies to deduct interest payments, according to a copy obtained by Buyouts.

The deductibility of interest is considered vital to the long-term health of private equity-backed companies, particularly those carrying significant loads of debt.

“The deduction for net interest expense incurred by C corporations will be partially limited. The committees will consider the appropriate treatment of interest paid by non-corporate taxpayers,” according to a copy of the framework.

The framework also reduces the corporate tax rate to 20 percent, “below the 22.5 percent average of the industrialized world.” Companies would also be able to fully expense major capital expenditures made after Sept. 27, excluding new structures or facilities.

It’s unclear how much corporations would be able to deduct under the current framework, which includes language indicating the general plan is supported by the House Committee on Ways and Means and the Senate Committee on Finance.

President Trump is expected to unveil the framework during a speech in Indianapolis later today.

“That’s as specific as we will be getting today,” White House spokeswoman Natalie Strom said in an email.

Elimination or reduction in the ability of companies to deduct interest expense could have unintended consequences, according to Gretchen Perkins, co-chair of the ACG Public Policy Committee and a partner at Huron Capital Partners. Perkins spoke at the Association for Corporate Growth’s 2017 Middle-Market Public Policy Summit on Wednesday.

“This is an increased tax burden on businesses,” Perkins said, explaining that a large number of companies in the United States use debt for essential needs like meeting payroll. “It immediately drops the value of those companies. If debt gets more expensive, the cost of capital goes up and values go down. Now a business owner gets to sell his company for less.”

A drop in the value of these companies would ripple into public pension portfolios, reducing the value of their investments, Perkins said. So one unintended consequence of this move could be to negatively impact the pensions of teachers, police officers and firefighters.

“Our understanding is that the amount [of limiting of the deduction] is still under consideration,” said James Maloney of the American Investment Council, an industry organization that lobbies on the behalf of roughly three dozen PE firms. A collection of industry organizations that has lobbied against changing the interest deduction, known as The BUILD Coalition, could not be reached for comment.

Action Item: For more information on President Trump’s statements, visit

U.S. President Donald Trump answers questions about his response to the violence, injuries and deaths at the “Unite the Right” rally in Charlottesville as he talks to the media in the lobby of Trump Tower in Manhattan, New York, U.S., August 15, 2017.   REUTERS/Kevin Lamarque

Christ Witkowsky contributed to this report.