Limit On Interest Deductibility Will Reduce U.S. Employment By Nearly 900,000 Jobs

An EY and National Association of Manufacturers’ analysis released last week found the U.S. Congress’ failure to reverse the stricter interest expense limitation could cost the nation’s economy up to:

• 867,000 jobs;
• $58 billion in employee compensation; and
• $108 billion in gross domestic product.

“These reductions are the result of changes in the direct operations of U.S. businesses with limited interest expense, suppliers to businesses affected by the stricter limitation, and related consumer spending,” the report said. Manufacturers and related industries would bear 77 percent of the economic burden.

As a reminder, the Tax Cuts and Jobs Act (TCJA), enacted in December 2017, generally disallowed the deductibility for interest expense exceeding 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA). Beginning in 2022, a stricter EBIT-based limitation went into effect. By excluding depreciation and amortization, the stricter calculation raised the tax burden on manufacturers that make investments in long-lived capital equipment. Of the 35 Organization for Economic Cooperation and Development countries with an earnings-based interest expense limitation, only the United States has an EBIT-based interest expense limitation.

Read the full analysis here.