US Chamber Of Commerce Pushes To Suspend Debt Buyback Tax Law
"It's a deleveraging process that clearly needs to take place across virtually all fronts of the economy," said Bruce Josten, the chamber's vice president of governmental affairs.
Sen. John Ensign, R-Nev. and a member of the Senate Finance Committee, introduced such a proposal Tuesday. Ensign is hoping to have the incentive included in President-elect Barack Obama's economic stimulus package. Ensign's plan calls for the tax to be suspended for one to two years.
The chamber sent a letter to congressional members on Tuesday, hoping to increase support for the proposal. "This temporary tax relief would allow many companies to restructure their balance sheets, reposition for positive growth and save tens of thousands of jobs across the country," the chamber's letter said.
"Creating temporary incentives to reduce debt levels in the U.S. economy would facilitate the deleveraging process and help create the conditions for resumption of economic growth."
The letter added that under current law, if a company or related party purchases its own debt at a discount, the company is required to pay income tax on the difference between the purchase price and the original issuance price of the debt. For instance, a company with $10 million in debt may be able to buy it back for $4 million. However, the company is required to pay income tax on the $6 million difference.
The move to suspend the tax law comes as credit markets remain frozen, corporate cutbacks contribute to jobless rate increases and lagging consumer confidence continues to limit potential profits.
While the measure seems promising, there is no guarantee businesses will take advantage of the incentive. But Ensign spokesman Tory Mazzola said that's not the point. It's more important that lawmakers give businesses the option, which could increase companies' cash flow and thereby boost the economy, Mazzola said.
Chamber chief economist Marty Regalia said not many businesses are opting to buy back their debt, even at discounted rates, because of the income tax consequences. "They don't want to have to pay tax on a loss," he said.
Regalia acknowledged that not all businesses will have the financial means or necessity to take advantage of the incentive. "But for the ones that could, it would be a net positive," Regalia said.
Regalia acknowledged that relaxing this tax measure is not the sole solution, but is merely another incentive to help jump-start gross domestic product growth and to loosen "what's appearing to be a stubborn blockage in the capital markets."
-By Darrell A. Hughes, Dow Jones Newswires; 202-862-6684; darrell.hughes@dowjones.com
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Publié le 07 janvier 2009 Copyright © 2009 Dowjones
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