- Tax laws should promote robust economic activity and a vibrant community banking sector and foster saving and investment.
- ICBA will closely monitor and engage in any tax reform debate or budget proposals in order to protect community banks and secure needed tax relief. In particular, any tax reform must preserve the pass-through option, including the Subchapter S corporation, and preserve the ability of business borrowers and mortgage borrowers to deduct interest without further limitation.
- Tax reform should encompass both corporate and individual tax laws so as not to distort or disadvantage one form over another. Any change to the tax law that disadvantages one form of corporate entity relative to another should include a period of “amnesty” to allow penalty-free corporate conversions.
- ICBA will oppose new bank-specific fees, punitive new tax levies, transaction taxes, limitations on the deductibility of FDIC premiums or other proposals specifically targeting the financial services sector.
- Public policy should support community banks’ ability to raise capital including allowing S corporation banks to issue preferred stock, increasing their shareholder limits, and allowing new IRA shareholder investments.
- The tax-exempt status of interest paid on municipal bonds for all recipients is critical to municipal finance and should be preserved.
- Tax subsidies for credit unions and farm credit system lenders must be ended.
Tax and Budget Reform Will Shape Tax Policy. The House Ways and Means Committee and the Senate Finance Committee have new chairmen who are eager to legislate. And while tax policy remains a highly partisan issue on Capitol Hill, new Speaker of the House Paul Ryan signaled that he will continue to push tax reform heading into the 2016 elections. Further impacting the tax environment is a recent slate of corporate inversions, where U.S. companies merge with foreign-owned companies in order to take advantage of other countries’ more favorable taxation of multinational corporations. Congressional tax writers aim to remedy this problem by pushing for international tax reform which would potentially move the U.S. from a worldwide tax-system to a territorial tax-system where profits earned overseas by U.S. companies are not taxed. The international component of tax reform has largely been driving the tax reform discussion in Washington. However, efforts by the House and Senate to craft an agreement with the White House have proved elusive thus far.
Tax Policy and Community Banks. ICBA continues to promote tax and budget policies that foster economic growth and support the community bank sector by providing direct tax relief and encouraging private savings and small business investment. A fair and unbiased tax code will enhance the viability of community banks and the vital role they serve in the U.S. economy as a critical source of lending for consumers, small businesses and farms. Any proposed tax reforms must consider the various community bank taxpaying structures including C- and S-Corporations as well as mutual savings banks and thrifts. Any proposed tax reforms must also recognize that debt financing plays a critical role in economic growth and job creation. ICBA will vigorously oppose any proposals to curtail the ability of business borrowers, including banks, to deduct interest expense. Additionally, ICBA will continue to monitor any legislation that requires revenue offsets or “pay fors” that may target the banking industry.
Ongoing economic challenges, low loan demand, and compressed interest margins make tax relief for community banks and small businesses all the more urgent. For most small businesses, tax costs represent the highest expenditure after labor costs. Tax rates and tax levels have consequences for small businesses including community banks.
Specific Measures Affecting Community Banks. ICBA has helped secure many important tax victories for community banks and their customer base resulting in more than $38 billion in tax relief in recent years. The Administration, Treasury, and Congress continue to seek ICBA’s recommendations on pro-growth tax initiatives. Given the potential for new tax increases, the ICBA Tax Committee will remain actively engaged in the legislative policy process. In particular, ICBA will continue to engage in any major tax reform or deficit reduction debate in order to prevent new taxes targeting the banking sector and secure needed tax simplification and relief.