When Jeb Bush unveiled his tax plan earlier this month, it included an elimination of the deduction for corporate borrowing costs. Fortune has since learned that there won’t be any exceptions, even for small businesses.
Under current tax law, companies receive a 100% deduction for all costs related to the assumption of debt. In other words, they get to write off their interest payments. It’s the sort of thing that fuels big leveraged buyouts on Wall Street, but also makes it more palatable for fast-food franchisees to take out equipment loans.
When President Obama released his corporate tax reform framework in 2012, he proposed an unspecified decrease to this deduction, with White House sources saying that there would be some minimum threshold so that most small businesses wouldn’t be adversely affected.
A source close to the Bush campaign, however, says that his plan contains no exceptions (save for existing debt, which would be grandfathered in). For small businesses, the former Florida Governor would argue that other provisions — such as full expensing and lower corporate tax rates (plus lower individual rates) — would more than make up for the loss of interest deductions.
“There are few tax code changes that will produce greater economic growth than full expensing,” the source explained. “However, providing full expensing for businesses while maintaining interest deductibility would produce negative tax rates for some businesses.”
The Bush corporate tax plan also would lower rates on interest received by taxing them like other investment income, which arguably could lower borrowing costs in the first place.
