This week's article is from Bloomberg, and it addresses "ACE" or "Allowance for Corporate Equity", a tax deduction for the cost of equity. This topic was under consideration in the European Union starting as early as 2016 and was still being debated in the summer of 2022. Another key term is DEBRA or debt-equity bias reduction. Here is a summary of a position paper from last October:

• We welcome the European Commission's efforts to support equity financing on a more equal footing compared to debt financing, with the aim of increasing investment and improving the resilience of the EU economy.
• We support an allowance on corporate equity. By encouraging equity financing, such an allowance can boost investments and economic growth, and provide alternative sources of finance to (young and innovative) companies.
• Proposals to make equity-financed investments more attractive should not come at the expense of debt-financed investments. We are at a time of increased political and economic uncertainty, with interest rates rising and increasing the likelihood of a significant economic downturn. But with significant investment required ahead of the digital and green transition, it is of utmost importance that EU companies have access to diversified source of financing without having to implement additional complex tax legislation. We are very concerned that the new interest limitation rule will make these investments more expensive and harm the competitiveness of European companies by introducing a stricter interest deductibility regime compared to others. Thus, we cannot support the proposed drafting of the DEBRA directive whilst a new interest deduction limitation measure remains included.

For this discussion, I'd like for you to 1) discuss the pros and cons of this type of taxation change on US companies and the overall economy. As you will read in the Bloomberg article, if it is enacted in the EU, US companies and our economy in general, may be at a disadvantage.

2) please give your opinion as to whether US corporate tax laws should enact something similar to what is being discussed in the EU (ACE/DEBRA)

https://news.bloombergtax.com/tax-insights-and-commentary/ending-tax-laws-subsidy-for-corporate-debt

Answer rating: 100% (QA)

1 Pros and Cons of Taxation Change on US Companies and the Overall Economy Pros Encourages equity financing Implementing an allowance for corporate equity can incentivize companies to rely more on equ... View the full answer