ACG Lauds Landmark Tax Reform’s Impact on Midmarket Businesses

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The association’s advocacy work helped save a core provision of the modern tax code

CHICAGO, December 22, 2017 – President Donald Trump today signed into law the most comprehensive overhaul of the tax system in nearly 30 years. As the voice of the middle market, the Association for Corporate Growth is encouraged by the positive impact the tax reform package will have on midmarket businesses, the primary engine of economic growth in the United States.

ACG was heavily engaged in every step of the process both as a founding member of the Businesses United for Interest and Loan Deductibility (BUILD) Coalition and separately through its advocacy arm. Our combined efforts helped ensure the interests of middle-market businesses remained well represented throughout the arduous process of drafting the legislation in both chambers of the 115th Congress, resulting in the preservation of interest deductibility, albeit amended.

“ACG’s partnership with BUILD Coalition was crucial in saving interest deductibility, an essential component of the corporate tax code for nearly 100 years,” says Pat Morris, ACG Global president and CEO. “Small businesses and startups—companies that rely heavily on debt financing—can now continue to grow.”

Highlights of the bill that directly affect middle-market businesses include:

Corporate Rate:

The legislation reduces the corporate tax rate from 35% to 21%, putting businesses on a level playing field with global competitors.

Interest Deductibility:

The tax reform bill preserves interest deductibility for businesses with some limitations:

  • The business interest expense deduction is limited to 30% of a company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years (2018– 2021).
  • After 2021, the 30% deduction will be defined on the basis of earnings before interest and taxes (EBIT).
  • This limitation does not apply for businesses with average gross receipts of $25 million or less.
  • The final tax reform bill also does not include the Section 163(n) interest limitation.

Full and Immediate Business Expensing:

A new provision, full and immediate expensing of qualified capital expenditures, applies until 2022 for purchases made after Sept. 28, 2017; the percentage of allowable expensing would then be phased out at a rate of 20% per year from 2023 (80%) to 2026 (20%).

Pass-through Income:

With 95 percent of all businesses structured as pass-through entities, many of which being midsize firms, the details of this provision are particularly impactful to ACG’s members and their firms.

  • A new 20% tax deduction applies to the first $315,000 of joint income earned by all businesses organized as S corporations, partnerships, LLCs and sole proprietorships.
  • In addition, for businesses with incomes above this level, the bill generally provides a deduction for up to 29% on business profits, reducing their effective marginal tax rate to no more than 29.6%.
  • Service industries such as “health, law, consulting, athletics, financial services, brokerages services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners” are not allowed to claim the tax deduction beyond the first $315,000 of joint income.

“These key provisions speak to the relationships that ACG has nurtured with regulators and lawmakers over the past few years,” Morris says. “Being included in these conversations going forward is critical to allowing the middle market, and the economy as whole, to continue thriving.”

For an in-depth look at the tax reform package and its impact on middle-market business, read the Middle Market Growth companion article here.

About the Association for Corporate Growth
Founded in 1954, ACG has 59 chapters across the globe. ACG’s worldwide network comprises 90,000 professionals within the middle market, including 14,500 members who serve as the investors, lenders, owners, executives and advisers to growing middle-market companies. ACG’s mission is to drive middle-market growth.

Contact:
Larry Guthrie, Director of Communications and Marketing
lguthrie@acg.org
312-957-4283

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