(CN) - In response to Sen. Orrin Hatch's request, the Securities Industry and Financial Markets Association outlined its concerns for any future tax reform legislation, arguing that an increase in taxation on banking activities or capital gains will inhibit investment.
Last month, Senate Finance Committee Chairman Orrin Hatch (R-UT) requested comments from stakeholders on the general issue of tax reform, an issue President Donald Trump pledged to turn to after focusing on healthcare.
With the current struggle to harness Republican support in the Senate for a healthcare bill that would replace the Affordable Care Act, tax reform appears to be the administration's next major legislative effort when Congress returns from its August recess.
In response, SIFMA issued a 27-page paper last week summarizing the securities industries' views on various tax policy issues.
The report begins by commending Congress and the Trump Administration for working towards comprehensive tax reform.
"SIFMA supports tax reform that enhances economic opportunities for individual Americans, promotes savings and encourages investment, and lowers the tax rate for American businesses that compete in a global marketplace where the U.S. tax rate is an outlier and the U.S. international tax system is out of step with our global competitors," the report states.
However, SIFMA outlined many past tax reform proposal, even those sponsored by Republicans, that it said would harm the financial industry.
For example, one Republican-sponsored reform bill proposed repealing the deduction for business interest expense in order to pay for reductions to the corporate tax rate.
SIFMA warned against the "highly disruptive" consequences of such a move however.
"For financial institutions, interest expense is the equivalent of the cost of goods sold, and imposing a limitation on gross interest expense deductibility would be akin to limiting the deduction for raw materials by a manufacturer, or labor costs for a retailer. The indiscriminate disallowance or deferral of deductions for interest expense would dramatically impact the orderly lending business operations of financial institutions," SIFMA said.
It also opposed proposals to tax derivative financial products or to raise the tax rate on capital gains, which currently sits at 15 percent for those with an income under $400,000 and 20 percent for everyone else.
"SIFMA continues to believe that if Congress considers further increases in the tax rates applicable to capital gains and qualified dividends, policy makers should take into account the negative impact of higher capital gains rates on realization, and the drag on economic growth that might result from further bias away from savings and towards current consumption in federal tax law," the report states.