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Proposed Tax Reform Could Spike Business Borrowing Costs

  • By Konstantine Kastens, AFP Public Policy Analyst
  • Published: 2013-12-11

A sweeping proposal to reform the U.S. tax code introduced by Senate Finance Committee Chairman Max Baucus (D-MT) could raise borrowing costs for U.S. businesses, according to financial experts interviewed by Bloomberg.

The proposal would remove a tax provision, in place since 1984, which grants full exemption on interest income for non-U.S. individuals or entities that invest in U.S. corporate debt. Known as the portfolio interest exemption, the intent of the provision is to attract foreign capital toward investment in U.S. domestic businesses.

As part of a larger effortto reduce the statutory corporate rate by leveling out various tax expenditures, Baucus’ proposal seeks to eliminate this exemption, subjecting non-U.S. investors to as much as 30 percent tax withholding on interest earned from U.S. corporate bonds.

Although the plan is only draft legislation, both tax-writing committee leaders–Sen. Baucus and Rep. Dave Camp (R-MI)—have announced they will not seek re-election and have been vocal about overhauling federal tax code before the end of their respective terms.

AFP is looking to corporate treasury and finance professionals for their thoughts on this matter. Comments for this proposal are due to the Senate Finance Committee by January 17, 2014.

While AFP has long supported adjusting the current rate corporate tax rate to one that is comparable to other developed nations, reform that puts a greater burden on U.S. businesses could be a step in the wrong direction. Please send your feedback to AFP Advocacy at kkastens@afponline.org.

 

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