Teachers Group Supports Aim of Proposed Debt-Equity Regs

The AFT has more than 1.6 million members in 3,500 local affiliated unions. Five divisions within the organization represent the spectrum of the AFT's membership: teachers; paraprofessionals and school-related personnel; local, state and federal employees; higher education faculty and staff; and nurses and other healthcare professionals. The AFT is a union of professionals that champions fairness; democracy; economic opportunity; and high-quality public education, healthcare and public services for our students, their families and our communities. This rule has direct relevance to that mission.

Earnings stripping occurs when a subsidiary U.S. corporation reduces its tax burden by borrowing from a foreign parent. The U.S. company deducts the interest from the purported loan on its taxes, even if this "debt" would never be collected by its foreign related entity.

These and similar tax avoidance practices erode the corporate tax base in the United States and make it harder for the federal government to invest in public services. Earnings stripping can also diminish state corporate tax revenue because state governments rely on the federal government to define the corporate tax base.

As noted in our comment on the proposed rule on Inversions and Related Transactions, (REG-135734-14), corporate income tax revenue as a share of total tax revenue for federal and state governments has steadily declined, even as corporate profits have increased and funding for many public services has been cut.

Those cuts matter. Today, more than a quarter-million fewer people are employed in public K-12 education than in 2008.¹ State support for public colleges remains well below prerecession levels.² Our public health system is under-resourced in the face of new challenges like the Zika virus.³ Both this rule and the proposed rule on Inversions and Related Transactions will work to ensure that corporations are paying their fair share in taxes to fund the public services that make it possible for our economy to function smoothly and effectively.

We also endorse the comments supporting this rule recently submitted by Americans for Tax Fairness (ID: IRS-2016-0014-0059). We are particularly supportive of the proposed rule applying to all foreign acquisitions of U.S. companies, and we would echo their call to expand the scope of this rule beyond what is currently proposed. We hope you will do that before this rule is finalized.

Thank you for your attention to these comments.

² Michael Mitchell, Michael Leachman Kathleen Masterson, "Funding Down, Tuition Up," Center on Budget and Policy Priorities, May 26, 2016, http://www.cbpp.org/research/state-budget-and-tax/funding-down-tuition-up.

³ Lena H. Sun, "Zika Funding Battle Steals States' Public Health Emergency Money," Washington Post, April 25, 2016, https://www.washingtonpost.com/news/to-your-health/wp/2016/04/25/zika-funding-battle-steals-states-public-health-emergency-money/.