By Mike O’Rielly
Congress is working on tax policies that could shape the future of American businesses, and one change is more urgent than ever if the goal is to enact an economic pro-growth tax law: bringing back the EBITDA standard for business interest deductions.
Back in 2022, the standard shifted from EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to EBIT (Earnings Before Interest and Taxes)—a change that’s increasing tax burdens, discouraging investment, and making it harder for companies to grow, expand, and hire.
The delayed shift was part of a compromise in the 2017 Tax Cuts and Jobs Act (TCJA), designed to help meet revenue targets set for the bill. At the time, it seemed reasonable—interest rates were low, and capital was widely available. But today, in a post-COVID economy with elevated interest rates, the impact of this shift is proving to be far more harmful than anticipated.
Let’s break down why the EBIT standard is holding businesses back—and why Congress must act now to restore EBITDA.
Why the EBIT Standard is Hurting Businesses
Switching to the EBIT standard disproportionately hurts capital-intensive industries—think manufacturing, infrastructure, real estate, energy, and transportation—where depreciation and amortization are major costs. But the damage doesn’t stop there. Other industries, including healthcare systems, and restaurants, are feeling the impact, too.
Here’s why EBIT is problematic:
- Higher Tax Burdens – By reducing the amount of interest businesses can deduct, EBIT increases tax liabilities. That means less money available for growth, hiring, and innovation.
- Discourages Investment – When financing costs go up, companies are less likely to invest in expansion, technology, or infrastructure improvements. Using the EBIT standard effectively reduces the incentive effect of bonus depreciation because every extra dollar of depreciation reduces the taxpayer’s interest deduction by thirty percent essentially undoing the benefits provided by accelerated depreciation. As a result, job creation and economic progress is stifled. As a result, accelerated depreciation alone will not allow capital intensive companies to maximize investment in America.
- Creates Cash Flow Challenges – Many businesses plan investments based on EBITDA, which includes depreciation and amortization. EBIT ignores these costs, making businesses appear more profitable on paper than they actually are—leading to financial planning issues and cash flow constraints.
A 2023 EY Study quantifies just how damaging this shift is:
- 867,000 fewer jobs
- $58 billion lost in employee compensation
- $108 billion shaved off U.S. GDP
That’s a massive hit to the economy—all because of an outdated policy that doesn’t reflect today’s financial realities.
Why Reinstating EBITDA is the Right Move
It’s time to bring back the EBITDA standard to ensure businesses can continue to grow and thrive. Here’s why it makes sense:
- Encourages Investment – Making it easier for businesses to obtain financing means more expansion, innovation, and infrastructure improvements—all of which protect American jobs and wages.
- Boosts Job Creation – Increased interest deductibility gives companies more flexibility to hire, raise wages, and invest in employee training programs. That’s a win for workers and the economy.
- Supports Economic Stability – With high interest rates and inflation, debt financing has become more expensive. Restoring EBITDA reduces financial strain, lowers financing costs, and helps businesses stay competitive and invest.
Congress Must Act: The Push for Change
There’s already momentum in Washington to fix this issue. Senate Finance Chairman Mike Crapo (R-ID) and House Ways and Means Chairman Jason Smith (R-MO) have both called for the need to make the 2017 tax provisions permanent using the common sense current policy baseline approach, if feasible under legislative rules. Rep. Adrian Smith (R-NE), joined by a bipartisan group of House Ways and Means members, has introduced H.R. 1347 in the House, while Sen. Shelley Moore Capito (R-WV) is leading the charge with S. 559 in the Senate. These bills aim to permanently reinstate the EBITDA standard for business interest deductibility, ensuring that the tax code supports—not penalizes—job-creating investments.
Congress has a choice: Continue burdening businesses with an outdated tax rule or restore a policy that drives investment, job growth, and economic resilience.
The time to act is now. Bringing back EBITDA isn’t just a smart tax move—it’s a critical step toward a stronger, more competitive U.S. economy.
Michael O’Rielly is the former commissioner of the Federal Communications Commission (FCC) and the spokesman for the RAIN Coalition, whose goal is to permanently restore the EBITDA standard for interest deductibility to promote job growth and capital investment.