Capitol Building by Andrew Malone is licensed under CC BY 2.0.
As lawmakers craft a reconciliation package that delivers on President Trump’s agenda of pro-growth tax cuts, Americans for Tax Reform urges lawmakers to restore the ability of businesses deducting net interest payments to include depreciation and amortization costs (Section 163(j)).
The Tax Cuts and Jobs Act (TCJA) signed into law by President Trump allowed businesses to deduct net interest payments against their adjusted taxable income limited to 30 percent of to earnings before interest, taxes, depreciation, and amortization (EBITDA).
However, this 30 percent limit tightened in 2022 as the EBITDA standard expired under law. The amount of interest deductions that businesses can take became limited to only using earnings before interest and taxes (EBIT), representing a significant tax increase on firms.
As Garrett Watson of the Tax Foundation points out, the U.S. is the lone country in the Organisation for Economic Co-operation and Development (OECD) to use an EBIT-based limitation for deducting interest payments. This current limit places American companies at a competitive disadvantage with the rest of the OECD. In fact, 27 OECD countries use EBITDA to limit the interest deduction, making it the most common treatment for deducting interest paid among OECD countries.
In January of 2024, ATR joined a coalition of 40 conservative organizations urging Congress to restore the interest deduction to include depreciation and amortization costs, arguing that doing so “would be a huge boon to American manufacturers.”
Restoring interest deduction to the standard of the early TCJA years would be pro-growth tax policy that reduces the tax burden on businesses. Restoring the EBITDA-based interest limitation would create jobs, increases wages and grow GDP by 0.1 percent, according to the Tax Foundation.
Americans for Tax Reform urges Congress to include this pro-growth restoration of deducting interest to be included in reconciliation this year.
