The economic impact of allowing a stricter interest deductibility limitation to remain in effect could be devastating, according to a new EY analysis prepared on behalf of the NAM.
What’s going on: Failure to reverse the stricter limitation that went into effect in 2022 could result in the following losses in the U.S., according to the study:
- 867,000 jobs
- $58 billion in employee compensation
- $108 billion in gross domestic product
More costly every year: Those figures have roughly doubled since the 2022 EY analysis released last year.
- Last year, EY estimated that leaving the stricter limitation in place would result in 467,000 lost jobs, $23.4 billion in lost employee pay and $43.8 billion in lost GDP.
The background: Prior to 2022, companies could deduct interest of up to 30% of their earnings before interest, tax, depreciation and amortization (EBITDA).
- However, since 2022, the deduction has been limited to 30% of earnings before interest and tax (EBIT), a significant change that disproportionately affects manufacturers, given their capital-intensive investments.
What can be done: “A stricter interest expense limitation restricts manufacturers’ ability to invest in new equipment and create jobs,” said NAM Managing Vice President of Policy Chris Netram.
- “Even more, the study finds that manufacturers and related industries bear 77% of the burden of this policy. Congress must act by year’s end to restore a pro-growth interest deductibility standard and allow manufacturers to continue to invest for the future.”
NAM in the news: POLITICO Pro’s Morning Tax newsletter (subscription) covered the study’s release.
Further reading: Visit the NAM’s interest deductibility page to learn more about this issue and how the NAM is taking action.