However things play out in the 2017 election, a new study says that even small changes in the corporate interest tax deduction could have big implications for middle market firms.
The results of the study “Eliminating the CIT Deduction: Value Implications for Middle Market Enterprises,” were released at a meeting of the Association for Corporate Growth in New Orleans, La., in mid-May. Authors of the study said that eliminating the corporate interest tax deduction could create “significant risks” for middle-market companies by reducing the attractiveness of borrowing and the ability to grow. The report found it would lead to an average decline in equity value by 6.3% for those companies, equating to a loss of more than $1 trillion in equity for the entire middle market.
Researchers found the impacts were most notable for those companies in consumer discretionary, energy, healthcare, materials, and telecommunications services. It was less of a concern for companies operating in consumer staples, industrials and information technology. The report stated that while RGL recognizes few tax reform plans would call for a complete elimination of the CIT deduction, the data shows the “uniquely influential aspect the CIT deduction plays in corporate valuation.”
A decrease in the CIT deduction would reduce the propensity for middle market companies to borrow, which would mean higher costs of capital with fewer growth projects. Summary statistics in the report illustrated a decline in the debt-to-capital ratio by as much as 10% and a .5% reduction in the growth rate. This reduction in growth rate alone would equate to a 15% decrease in values for middle market enterprises, wiping out nearly $2.5 trillion in equity.
“While it is unlikely we can fully predict all of the ways that eliminating the CIT deduction would affect companies, its central role in valuations and capital spending decisions warranted the analysis,” said RGL Forensics partner Matthew Morris.
BUILD (Businesses United for Interest and Loan Deductibility) Coalition, an organization that aims to preserve 100% interest deductibility for businesses, has been expressing concern since 2015 about presidential candidates on both sides of the aisle calling for reductions in CIT. “While we are encouraged that Presidential candidates want to reform the tax code, maintaining full interest deductibility, a normal cost of doing business, is imperative to ensuring these reforms will be successful,” said spokeswoman Sabrina Siddiqui in a blog post.
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1:00 - 5:00 pm
Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process
Executives expressed frustration with their current strategic planning process. Issues include:
Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns. They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning. Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process. This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented. If you are ready for a Strategic Planning tune-up, select this workshop in your registration form. The additional fee of $695 will be added to your total.
2:00 - 5:00 pm
Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations.
Limited space available.
10:30 - 5:00 pm
General’s Retreat at Hermitage Golf Course
Sponsored by UBS
General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.
The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.
