Trump Preference for Interest Deduction May Snarl GOP Tax Plan

[jpak]

https://www.bloomberg.com/politics/articles/2017-05-12/trump-preference-for-interest-deduction-may-snarl-gop-tax-plan

President Donald Trump is leaning toward preserving a trillion-dollar tax break for corporate borrowers -- a move that economists say could jeopardize his goal of robust economic growth.

The administration’s “preference” is to keep so-called interest deductibility, which allows companies to subtract interest payments from taxable income, Treasury Secretary Steven Mnuchin told The Economist in a joint interview with Trump. Their remarks, published Thursday, reveal a new fissure between Trump’s vision for tax policy and that offered by House Speaker Paul Ryan.

Ryan has called for eliminating interest deductibility, a move that would raise an estimated $1 trillion over 10 years. Gaining that revenue would help pay for rate cuts and other tax measures that Ryan and other GOP leaders want, including a provision that would allow corporations to immediately write off the cost of their capital spending.

Economists say such “immediate expensing” -- as opposed to the current system that allows cost recovery for tax purposes only over time -- would stimulate corporations to invest more. But it’s one or the other; a tax system that allows both interest deductibility and immediate expensing would distort the economic value of debt transactions and spur companies to borrow for tax advantages, not investment, said economist Alan Viard of the American Enterprise Institute.

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