Andy Fishburn 2016-11-15 00:42:58
A Game of Inches
VINCE LOMBARDI is widely credited with the quote “Football is a game of inches.” Advocating in the federal government sphere is oft en a game of inches as well. As we prepare for ELFA’s advocacy in 2017, it is a good time to look back on two specific instances of inches gained in 2016 through determined advocacy by ELFA member volunteers.
The Deductibility of Business Interest
In the equipment finance world, debt is oft en likened to a raw material. In addition to the interest ELFA member companies pay on the debt they issue or the lines of credit they draw upon, ELFA member companies’ customers pay interest under the terms of the financing arrangement. Th e ability to deduct interest as a business expense when calculating income subject to tax makes capital formation cheaper, and is really no different than a company deducting payroll expenses or a home builder deducting the cost of lumber. Aft er all, income still equals revenue minus expenses. ELFA has long advocated that maintaining the ability to deduct interest as a business expense is a critical outcome if tax reform is ever going to come to the fore.
In recent years the concept of eliminating the ability to deduct business interest in exchange for immediate expensing of capital acquisitions has gained popularity in Washington, especially among the more conservative economic think tanks. Earlier this year the Ways and Means Committee chairman released a tax reform blueprint that struck that very deal. However, that same blueprint states, “Th e Committee on Ways and Means will work to develop special rules with respect to interest expense for financial services companies, such as banks, insurance and leasing, that will take into account the role of interest income and interest expense in their business models.”
The inclusion of leasing in the blueprint is in no small part due to the advocacy of ELFA members in recent years, and its inclusion shows that the Committee recognizes the important role that interest plays in ELFA member companies’ business models. Count that as an inch gained.
In 2017 it is incumbent on us to go further and show the value that interest deductibility plays in our customers’ business models and the role that equipment leasing and financing, and the associated interest payments, plays in business formation. We have reason to believe that our arguments have traction. Ways and Means Committee members have recently indicated that eliminating interest deductibility would favor businesses started long ago at the expense of those starting today, and that it would advantage companies with access to equity markets at the expense of those starting on a shoestring budget. Th ese are arguments that will ring true with Members of Congress and the millions of small businesses that they represent.
Section 1071
Section 1071 of the financial regulatory reform law passed in 2010 and commonly called Dodd-Frank amended the Equal Credit Opportunity Act to require issuers of commercial credit to collect certain demographic information about their customers. ELFA member companies immediately recognized that this could cause a seismic shift in the way commercial credit is issued in the United States and have advocated ever since that the provision should be repealed, or at least changed dramatically. However, the political winds have not been favorable to changing any aspect of Dodd- Frank and it is has been an uphill climb. ELFA members and staff have, nonetheless, diligently kept up the drum beat on Capitol Hill on this issue.
In September the House Financial Services Committee passed a bill through Committee that repeals Section 1071 of Dodd-Frank. While this bill isn’t likely to pass the full House this session of Congress, the inclusion of a repeal of Section 1071 certainly counts as moving the issue inches forward into a steady headwind. The fact that Republicans on the Committee of jurisdiction are now on the record as expressing their preference for the repeal of the provision will be an important foothold as ELFA continues to work on this issue in 2017 in the halls of Congress and with the Consumer Financial Protection Bureau, the agency charged with issuing regulations implementing Section 1071.
Andy Fishburn is ELFA Vice President of Federal Government Relations.
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