Caroline L. Harris
Former Vice President, Tax Policy & Economic Development, Former Chief Tax Policy Counsel


December 11, 2017


As we continue work towards pro-growth tax reform, the U.S. Chamber continues to give input that would make the final product as pro-growth as possible. Last week, we chimed in here and here on concerns on the alternative minimum tax (AMT). And we’ve been communicating ideas to Capitol Hill and the administration on myriad other issues like interest deductibility, transition rules, international competitiveness issues, passthrough concerns, and other more industry specific concerns (that nonetheless present ramifications for the economy as a whole).

While all issues merit attention, today, I’m taking a deeper dive on one issue in particular: interest deductibility limitation. There are two limitations in play here: (1) §163(j), which imposes a general limitation on net interest deductibility; and (2) §163(n), which provides a limitation based on the group’s worldwide debt ratio. Taxpayers would be disallowed interest deductions pursuant to whichever provision (§163(j) or §163(n)) denies a larger amount of interest expense. If this seems confusing or burdensome, that’s because it is.

Keeping the goals of simplicity and global competitiveness at the forefront, the first thing that can be done to improve these provisions is quite simple – strike §163(n). It’s a departure from OECD norms and it adds unnecessary complexity to the tax code. This is not the place for American exceptionalism.

Further, while the business community can accept some form of §163(j)-like limitation on interest deductibility, the Chamber urges that the House approach, which caps net interest deduction at 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA), be adopted over the Senate approach which caps it at 30% of earnings before interest and taxes (EBIT). The House §163(j) EBITDA approach is the more appropriate approach both in terms of global consistency (aka, looks more like our competitors’ approaches) and pro-growth policy. The DA is important here – we need the DA! We also believe the Senate indefinite carryforward of disallowed interest provides a more pro-growth approach in the §163(j) space.

So, bottom line, as we strive for a code that it internationally competitive and globally consistent, the removal of §163(n) is paramount to ensure those objectives are achieved. Under §163(j), adopting the House EBITDA approach and the Senate carryforward period are additional steps that can help move America’s approach to interest limitations in line with our global competitors and ensure that tax reform is as pro-growth as possible.

Tell Congress: The time for tax reform is now.

About the authors

Caroline L. Harris

Caroline Harris is former vice president, tax policy and economic development, and chief tax policy counsel at the U.S. Chamber of Commerce.