I’m a second-generation Dunkin’ Donuts franchisee with more than four decades of experience with the brand. My family immigrated from Portugal to Boston in the 1970s and my father juggled several jobs to make ends meet, including one as a baker for Dunkin’ Donuts. My family invested in their first store in Derry, New Hampshire , in 1980. Since then, we have gone on to invest in 245 locations, employing roughly 5,000 team members.
Over the years, we have supported more than 100,000 team members, many of whom have grown into leadership roles in our business , including team members who have become franchisees themselves. We pride ourselves on being a family company with a “people first” culture.
DOE LOWERS ESTIMATED CONSUMER SAVINGS FROM GAS STOVE RULE, SPARKING CRITICISM
The last year was difficult for us, as it was for all consumers and businesses, as inflation across the economy reached historic levels. The Federal Reserve’s efforts to combat inflation’s devastating impact by raising interest rates seven times in the last year alone created further devastation and drove up the cost of borrowing for businesses like mine.
As a result, businesses across the country are not positioned for success, and it is clear that adjustments must be made to give owners the tools they need to thrive. The key to creating lasting change and keeping the economy humming through periods of dramatic monetary policy adjustment, such as the one we are in now, is to avoid other, unrelated hardships from falling on our job creators and employees. Arguably now more than ever, businesses across the country need Congress to remedy how business debt is handled.
A recent survey conducted by the National Restaurant Association found fewer than one in four restaurant operators with an Economic Injury Disaster Loan are able to pay scheduled principal and interest payments. Inflation is turning the very loan that was intended to be a lifeline into a burden. You would assume that our elected leaders would support business owners in other forms of financial relief, but, as is often the case in politics, the opposite is happening.
Prior to 2022, a business could deduct interest paid on loans and other debt, up to a total of 30% of earnings before interest, taxes, depreciation, and amortization. This is known as EBITDA. Through these savings, small and midsized companies were able to make crucial investments in technology, equipment, and other necessary projects without crippling their budgets.
Unfortunately, that ability has been stripped. With little warning, the tax rules were changed, and businesses are now only allowed to deduct that crucial 30% from earnings before interest and taxes. Removing depreciation and amortization from the table has left businesses in a state of struggle, to say the least.
This rule change might seem niche, but its impact will be substantial. A report by America’s Interest indicates that changing EBITDA to EBIT will, on average, result in a nearly three-fold increase in business owners’ incremental taxes. Equipment-intensive industries will be hit especially hard; the average food services company, for example, will see a 35x increase.
The timing of the change adds fuel to the fire, too. Hospitality sector businesses hemorrhaged cash during the COVID-19 pandemic as government restrictions constrained operations and reduced customer demand and visits. Maintaining an EBIT-based interest deduction rule will only exacerbate their struggles.
I fear that this “under-the-radar” tax hike will catch many restaurateurs and other small business owners unprepared. Entrepreneurs who continue to work hard to serve their local communities and keep our economy from falling into recession will be hit with unexpected and significantly higher tax bills at the end of the year. As a result, businesses will slash future-focused investments, which will harm economic growth, labor productivity, and likely wages.
Business owners need change — fast.
Congress has solutions that can help businesses manage rising interest rates and debt and still make the investments they need to survive the ever-changing economy. The first step is to restore depreciation and amortization into the deduction equation. EBIT must become EBITDA again.
Simply stated, these two letters affect every American. Policymakers must act now to help American businesses grow in the short- and long-term and remain competitive in the global marketplace.
CLICK HERE TO READ MORE FROM RESTORING AMERICA
Mark Cafua is the CEO of Cafua Management Company, the world’s largest private Dunkin’ Donuts franchise.