Winter Is Coming: The Growth-Crushing Impact of the Debt-Equity Rules Begins

Today, dozens of Ohio employers—from global clothing retailers to brewers, manufacturers, and health companies—banded together in a letter to warn Secretary Lew about the already devastating impact the Section 385 proposed debt-equity rules are having on investment and job creation. The letter highlights the complications to self-financing and access to capital, the hesitation to enter into long-term commitments caused by uncertainty created by these rules, and the increased compliance burdens and costs.

Sound familiar? It should, because as the U.S. Chamber noted in public comments to the IRS in early Julytestified about later that month [subscription required], and has been saying on Capitol Hill, regarding the proposed regulations:

They make efficient global cash management nearly impossible, they hinder repatriation strategies, they result in lost interest deductions and increased dividend withholding, in instances they result in double taxation . . . they impact ordinary legal entity restructurings as well as equity compensation practices, and they cause additional problems such as increased compliance and the creation of complex hybrid instruments.  

These Ohio job creators further questioned how such rules remotely serve the goals of the Treasury Department to “[m]aintain a strong economy and create economic and job opportunities by promoting the conditions that enable economic growth and stability at home and abroad.” Finally, they emphasized a frequently heard cry of the business community, asking the Treasury Secretary to consider the damaging collateral consequences of these rules on employers striving simply to drive growth and create jobs.

We couldn’t agree more. As we’ve noted in the past, the business community’s concerns “must be addressed to prevent unnecessary disruption to normal business operations, as well as to ensure both that U.S. companies can compete globally and that foreign capital is welcomed within our borders.”

To be clear, there’s nothing about these regulations that target Ohio businesses. Businesses in all 50 states could have written letters. It just happens Ohio was first. The bottom line is that these regulations as currently proposed will have deleterious effects rippling across the U.S. economy.

Summer is over and Fall is here. But without Treasury action to relieve sweeping and damaging impacts of these rules, and similar relief from the Administration’s “audacious” regulatory program, an early Winter for the U.S. economy will arrive much sooner than expected.

 

Originally published on the U.S. Chamber’s Above the Fold.

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