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Report: Treasury’s Rules Will Cause Serious Economic Harm

WASHINGTON – Business Roundtable and the Organization for International Investment (OFII) today released a study, prepared by PwC, providing a quantitative analysis of how the U.S. Treasury Department’s proposed debt/equity regulations would affect U.S. economic competitiveness.  

The report examines how Treasury’s rules would affect investments by U.S.-based companies and foreign-based firms in the United States using illustrative examples.  The report finds that these investments by U.S. employers would be severely impacted by the proposed rules due to increased financing costs, elevated business risk, added compliance burdens, and a more complex and uncompetitive tax environment.

For U.S.-based companies operating internationally, the report provides case study examples showing how the cost of financing routine business operations can increase substantially under the proposed regulations – potentially raising the cost of finance by multiples.  These impacts, on the over 2,000 U.S.-headquartered companies that support 76.6 million jobs in this country, will diminish their global competitiveness and their ability to grow at home.

“This action by Treasury is a significant step backward for American competitiveness. America’s leaders should be doing everything possible to attract business investment and to keep companies in the United States.  Unfortunately, the Treasury rules do just the opposite – they will impede investment and turn business certainty on its head,” said John Engler, President of Business Roundtable.  “The extent of Treasury’s proposed regulations has shocked the business community – we urge Treasury to pull back or significantly rework the proposed regulations to avoid excessive regulatory burdens on the U.S. economy.”

The impact on inbound employers – those headquartered abroad and with significant U.S. operations, supporting more than 24 million U.S. workers – would be equally significant.  

“This report clearly demonstrates how Treasury’s effort to push through sweeping regulations in record time not only has the potential to harm millions of American workers, it stands in direct contradiction to the Administration’s attempts to prioritize foreign direct investment,” said Nancy McLernon, President and CEO of OFII.  “Despite statements to the contrary, it is clear that Treasury’s proposed regulations will make investing in a new factory even more costly at a time when America needs the quality jobs that global investment can provide.” 

Under one example an inbound company planning to build a new U.S. factory, even if it restructured operations to mitigate the adverse impacts of the proposed regulations, would still face an increase in financing costs equivalent to a seven percentage point increase in the statutory corporate tax rate (from 35 to 42 percent) on its new investment.  In this scenario, firms with such investments would be expected to decrease their direct investment into the United States by 16 percent.

In another example of an inbound employer that was unable to restructure its financing, the increased tax burden (due to loss of tax treaty benefits) would be equivalent to a corporate tax rate increase to more than 100 percent, making its investment in the U.S. economy unprofitable.    

The report also estimated that the compliance costs of the Administration’s proposed regulations for a Fortune 100 company would be $1.25 million annually, with first-year costs of $4 million after accounting for the costs of new systems required for documentation and compliance.

 

Download the Study 

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