Oct 26, 2017

GOP tax plan includes limit on biz interest deductibility

From left, Rep. Carlos Curbelo (R-FL) R-Fla., Rep. Vern Buchanan (R-FL) and House Ways and Means Committee Chairman Kevin Brady (R-TX). Photo: J. Scott Applewhite / AP

House Republicans are six days away from unveiling the details of their tax plan, and just four days away from most GOP members getting to learn what's actually in it. But multiple sources familiar with the process say that there will indeed be proposed changes to the deductibility of corporate interest.

Why it matters: The move could eat into returns for many private equity and real estate investment funds, although the reduction won't be as deep as some had feared.

Specifics: The current talk is to reduce the current 100% deduction down to 70%, with an expectation that the extra 30% would be taxed at the new statutory corporate rate. There is an expectation that existing debt would be grandfathered in, and transition rules may include grandfathering for debt that is in process as of the Nov. 1 roll-out (if that last part proves out, expect a massive surge in leveraged loan soft launches).

Caveat: Interest deductibility is viewed by the GOP as one of its few remaining ways to pay for tax cuts, and the 70/30 plan was devised in concert with 401(k) caps. If the 401(k) plan gets scrapped over Trump's tweet threats, then it's possible the deductibility limit could climb.

Magic number is 25%: That's the statutory rate at which many LBO shops are said to believe the deducibility cuts would effectively balance out. Any lower (i.e., the floated 20%), then the private equity bigs view this as an overall win. Any higher, and returns will suffer.

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Situational awareness

Photo: Brett Carlsen/Getty Images

Catch up on today's biggest news:

  1. Mike Bloomberg offers to release women from 3 NDAs
  2. Wells Fargo to pay $3 billion to settle consumer abuse charges
  3. Bloomberg campaign says Tennessee vandalism "echoes language" from Bernie supporters
  4. Scoop: New White House personnel chief tells Cabinet liaisons to target Never Trumpers
  5. Nearly half of Republicans support pardoning Roger Stone

Wells Fargo agrees to pay $3 billion to settle consumer abuse charges

Clients use an ATM at a Wells Fargo Bank in Los Angeles, Calif. Photo: Ronen Tivony/SOPA Images/LightRocket via Getty Images

Wells Fargo agreed to a pay a combined $3 billion to the Justice Department and the Securities and Exchange Commission on Friday for opening millions of fake customer accounts between 2002 and 2016, the SEC said in a press release.

The big picture: The fine "is among the largest corporate penalties reached during the Trump administration," the Washington Post reports.

Bloomberg offers to release women from 3 nondisclosure agreements

Mike Bloomberg. Photo: Brett Carlsen/Getty Images

Mike Bloomberg said Friday his company will release women identified to have signed three nondisclosure agreements so they can publicly discuss their allegations against him if they wish.

Why it matters, via Axios' Margaret Talev: Bloomberg’s shift in policy toward NDAs comes as he tries to stanch his loss of female support after the Las Vegas debate. It is an effort to separate the total number of harassment and culture complaints at the large company from those directed at him personally. That could reframe the criticism against him, but also protect the company from legal fallout if all past NDAs were placed in jeopardy.