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Tax Reform Core Principles

The American Bankers Association (ABA) is strongly in favor of tax reform that strengthens economic growth and creates jobs. A stronger economy would be good for the country, our members, and their customers. ABA will conduct a thorough analysis of all tax reform plans considered by Congress and evaluate their effects on the economy, the banking industry, and our customers.

ABA supports the following core tax reform principles which will form the base of our comprehensive analysis:

  • Lower rates: Lower rates for all businesses, C-corps and pass-throughs, are essential to increasing the economy’s potential. Tax rates should be lowered substantially to maximize economic growth and allow U.S. businesses to be competitive in the global market.

  • Broaden the tax base and simplify the code: A broader tax base will raise revenue to help offset the revenue reduction from lower rates and other pro-growth policies. A broader base will level the playing field for all businesses so the tax code does not pick winners and losers, and will simplify the tax code which is necessary to reduce the heavy compliance burden businesses face today.

  • Eliminate the special tax treatment of credit unions and the Farm Credit System: As part of base broadening, tax reform should eliminate the long-standing tax benefits enjoyed by credit unions and the Farm Credit System. Businesses offering similar services should be treated equally under the tax code. It is wrong that credit unions and the Farm Credit System are not subject to comparable tax provisions when they often compete in the same markets against fully-taxable banks.

  • Carefully consider the impact of limiting the deductibility of interest: The treatment of interest expense is a major component of the tax code. In general, interest expenses should be deductible for borrowers as long as interest income is taxable to borrowers. Limiting the ability of borrowers to deduct their interest expense could adversely impact economic growth. The extent of tax rate reductions will be a key factor in assessing the broader impact of any changes to the deductibility of interest. For banks, interest expense is the cost of goods sold. It should remain fully deductible for them.

  • Avoid Industry-specific Taxes: Tax reform should level the playing field for all businesses. Industry-specific taxes are bad policy and would run contrary to this goal. They would be punitive and unfair to the industries targeted. Industry-specific taxes would also slow economic growth, which would hurt the central purpose of tax reform.

  • Pay close attention to transition rules: Tax reform should provide adequate time for the market and balance sheets to adjust to the new system. It should pay particular attention to the impact it has on certain tax credits and other investments that have historically received tax incentives for public policy reasons.