Private equity preps a two-part tax fight
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Private equity is ramping up for this summer's federal tax fight, and carried interest isn't the only break on the block.
Why it matters: The future of Wall Street economics may be decided on K Street.
Driving the news: The American Investment Council is launching a 7-figure ad campaign that sounds a lot like PE image rehab, Axios' Hans Nichols reports.
- Its primary interest is maintaining the status quo on carry, the portion of investment profits kept by fund managers, over the objections of President Trump. Just as it did back in 2017, albeit with a much bigger GOP House majority.
Zoom in: The industry also wants limitations on corporate tax deductions for interest to be calculated via EBITDA rather than via EBIT — adding depreciation and amortization to the formula — given how many of private equity's portfolio companies are leveraged.
- This change was made in 2017, but then it sunset at the end of 2022.
- AIC has partnered with several other trade groups to ensure that the new tax bill reverts to the base text of 2017, which was supported by Trump, although it could be a heavy lift given all the other new tax breaks that are being proposed (tips, overtime, Social Security, SALT, etc.).
State of play, per Axios' Stef Kight: The Senate will vote soon on the updated budget resolution, and then kick it back to the House. Their goal is to get done before they take their two-week recess around Easter. And then the real haggling begins in earnest
- The recent CBO report saying the debt ceiling must be dealt with by August or September is probably a helpful forcing mechanism.
The bottom line: Private equity usually wins these battles, but these may be the most contentious tax negotiations since the industry became ubiquitous.
