September 21, 2021
A few months ago, AICC President Michael D’Angelo wrote in his “Final Score” column about your Association’s ongoing work with business coalitions to advocate on behalf of small and medium-size companies such as AICC members. (See “The Accidental Advocate,” BoxScore, September/October 2020, p. 72.) Since AICC is not large enough to have a dedicated government affairs presence before the federal government, it just makes sense to work in coalition with larger business groups that do.
A recent example of this work concerns a critical provision from the 2017 tax reform law that will expire at the end of 2021, potentially increasing taxes on businesses and making it more expensive to finance equipment purchases and other capital-intensive projects. I’m referring to the provision that allowed companies to take a tax deduction of up to 30% of their earnings before interest, taxes, depreciation, and amortization (EBITDA). Starting in 2022, the limit will be 30% of earnings before interest and tax (EBIT) only. By excluding depreciation and amortization, the stricter EBIT standard will limit the size of the potential deduction, which will increase taxes on businesses and make financing equipment purchases more expensive. According to an analysis conducted by the consulting firm PwC and commissioned by the National Association of Manufacturers, the average business impacted by the change will see a three-fold increase in their incremental tax obligations.
I’m not an accountant, and so I’ll leave the technicalities to the professionals. But as I see it, when the EBIT standard takes effect in 2022, capital-intensive businesses such as ours will see an increase in their tax liability and financing costs. The lowered limitation will make it more difficult for those of us who own businesses to raise capital, hire new workers, and grow. The reduction in flexibility and liquidity caused by the change will also harm businesses’ ability to recover from the economic damage caused by COVID-19. All of us are seeing rising costs across the board, from raw materials to labor, as we struggle to attract workers to our businesses. Do we really need our government adding to this increasingly heavy burden?
The letter to Congress signed by AICC and more than 110 other associations says, “We respectfully encourage you to support investment and job growth at capital-intensive businesses across the country by permanently preserving an EBITDA standard for business interest deductions.”
I encourage you to do the same. You can find the contact information for your U.S. senators at www.senate.gov and your representatives in the House of Representatives at www.house.gov.
Eric Elgin is owner of Oklahoma Interpak and Chair of AICC’s Government Affairs subcommittee. He can be reached at 918-687-1681 or eric@okinterpak.com.
