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Illustration: Sam Jayne / Axios

Private equity's top lobbying group, The American Investment Council, is saying that it supports the federal tax bill that Congress is expected to pass on Tuesday.

Bottom line: It's a bit of a mixed bag for private equity, but the positives easily outweigh the negatives.

The positives for private equity include:

  • Lowering the corporate rate to 21%.
  • Lowering the top individual rate from 39.6% to 37%.
  • Continuing to treat carried interest as a capital gain, rather than at higher ordinary income rates (here's a primer on carried interest). The minimum hold time to qualify for this treatment was expanded from one year to three years, but that's more aimed at certain hedge fund managers, as private equity typically holds more than three years.
  • Had carried interest been touched, then some firms may have tried restructuring investment income to qualify for pass-through rates, so this saves them the trouble.

The main negative for private equity is that companies only will be allowed to deduct corporate interest on up to 30% of EBITDA for the first four years, and then 30% of EBIT afterwards. This is a change from the current 100% deductibility of interest, which could lower returns for private equity firms that rely heavily on the use of leveraged financing.

  • Expect private equity to spend the next four years trying to make sure the EBITDA link remains in place, as it is would be more beneficial to the industry.

Here is the American Investment Council's statement:

"American Investment Council commends Congress for this pro-growth, comprehensive tax bill. After decades without major reform, any tax legislation will inevitably require some trade-offs from all sectors of the business community. While the effects of the bill on private equity are mixed, we believe the final tax bill encourages business expansion and investment and will improve the environment for investing in the United States. On balance, the tax bill represents a net positive for private equity and will enable the industry to continue to make long-term investments that will grow the economy."

Go deeper

School principals are not OK

Principal Alice Hom (purple jacket) of New York's Yung Wing School P.S. 124 near a vaccination van in November. Photo: Michael Loccisano/Getty Images

The overwhelming majority of secondary school principals experienced frequent stress last school year, according to a RAND Corporation report out Wednesday.

The big picture: The stress levels among female principals and principals of color were especially stark, with nearly 40% in these groups reporting constant job-related stress, compared to about 24% of male principals and 26% of white principals.

It's official: Stock market having worst start to year ever

Data: FactSet; Chart: Axios Visuals

It's been a decidedly ugly start to the year for the stock market, with particular pain in the tech trade.

State of play: As of the end of trading Tuesday — the 16th session of the year — 2022 is now, officially, the worst-ever start in the history of the S&P 500, according to data from Ned Davis Research, a stock market research shop.

Surprising pandemic side effect: Soaring trade deficits

Source: Census Bureau and Bureau of Economic Analysis; Chart: Axios Visuals

Inflation and jobs may get all the economic headlines, but meanwhile a big shift is taking place in the underpinnings of the world economy: The U.S. trade deficit is soaring.

What's happening: Americans' spending on imported physical goods has gone through the roof, while exports are growing slowly, making the U.S. the world's consumer of last resort.