NFFS Requests Reinstatement of the EBITDA Interest Deductibility Standard

Posted By: Jerrod Weaver Government Affairs,

On November 29, NFFS joined the National Association of Manufacturers in drafting a letter calling on Congress to act by year’s end to restore the EBITDA standards for interest deductibility. This letter is similar to other letters sent by NFFS to Congress supporting the reinstatement of the EBITDA interest deductibility standard as authorized by the NFFS Government Affairs Committee earlier in 2022. A copy of the letter is shown below:

“The undersigned companies and associations write in strong support of re-instating the EBITDA standard for business interest deductions. Debt financing plays an important role in supporting job-creating investments, but a stricter limitation on the deductibility of interest payments on business loans took effect at the beginning of 2022.

“Prior to January 1, 2022, businesses’ interest expense deductions were limited by section 163(j) to 30% of their earnings before interest, tax, depreciation, and amortization (EBITDA). Interest deductions are now limited to 30% of earnings before interest and tax (EBIT). By excluding depreciation and amortization, the stricter EBIT standard makes it more expensive for capital-intensive companies to debt finance and grow their businesses.

“Under an EBIT standard, capital-intensive companies face higher taxes and increased financing costs. This reduces their flexibility and liquidity when financing needed investments, ultimately making it more difficult for these job creators to raise capital, hire new workers, and grow—especially at a time of rising interest rates. In fact, a recent EY study found that failing to reverse the shift from EBITDA to EBIT will cost the U.S. economy 467,000 jobs, $23.4 billion in lost wages, and $43.8 billion in GDP.

“The industries most impacted by the change from EBITDA to EBIT are vital to the U.S. economy. The EY study found that 81% of interest expense disallowed under the new standard would come from manufacturing and related industries. Similarly, a PWC report found that the manufacturing and information industries would pay the most in new tax obligations under an EBIT standard, while accommodation and food services, mining, and transportation and warehousing would experience the greatest tax increases.

“Additionally, limiting business interest deductions harms U.S. competitiveness by making the United States an outlier compared to our peers in the OECD. Among the 35 countries worldwide with an earnings-based interest limitation, the United States is the only one with an EBIT-based standard.

“Rep. Joe Morelle (D-NY), Rep. Adrian Smith (R-NE), and Sen. Roy Blunt (R-MO) have introduced legislation to permanently preserve the EBITDA standard and ensure that the tax code does not penalize job-creating investments. We respectfully encourage Congress to support investment and job growth at capital-intensive businesses across the country by passing a permanent extension of the EBITDA standard for business interest deductions.

“At a minimum, we urge Congress to act by year’s end to extend the EBITDA standard for at least four years. A four-year extension would reverse the EBIT change for 2022 and provide much-needed tax certainty through 2025—critical relief given ongoing economic instability and rising interest rates. Congress must act swiftly to ensure that section 163(j) does not unduly limit businesses’ ability to grow and create jobs here in the United States.”