Private Equity Set to Win Big in Hill Tax Deal
Private Equity Set to Win Big in Hill Tax Deal
‘Private equity is cheering on the huge tax breaks they will get if this deal passes the Senate,’ said Rep. Rosa DeLauro.
This week I wrote two stories for The Guardian about corporate tax cuts.
Yesterday’s story highlighted a new report that found that some of America’s most profitable companies “have slashed their tax bills in the years since the passage of the Trump tax cuts, with nearly a quarter paying rates in the single digits and 23 paying nothing.”
The 2017 law cut the top corporate income tax rate from 35 percent to 21 percent. But the new assessment of corporate tax avoidance, published on Thursday by the nonprofit Institute on Taxation and Economic Policy (ITEP), found that during the first five years the law was in effect, many profitable public companies in the United States paid a far lower rate in practice.1
Together, the 342 corporations studied by ITEP paid an average effective tax rate of just 14.1 percent. … Among the lowest taxpayers were companies including Netflix and Nike, as well as several corporations whose CEOs have become high-profile advocates for corporate social responsibility and “stakeholder capitalism,” such as Salesforce and Bank of America.2
You can read the full story here: “Trump gave top US firms staggering tax cuts, with some paying $0 or less—report.”
This morning The Guardian published another uplifting piece (😩), “‘Huge tax breaks’: private equity prepares for a boon from Congress,” which shows how private equity funds could profit enormously from a tax deal currently working its way through Congress.
The Wyden-Smith agreement—named for the Senate and House chairs of the tax-writing committees—pairs handouts for big businesses with a moderate expansion of the child tax credit.3
While large U.S. companies of pretty much every sector and industry would win sizable tax breaks in this deal, private equity funds are especially primed to benefit from one provision in particular: the ability to deduct from their taxes a greater proportion of the interest they pay on their debt.
Higher interest rates have made debt more expensive, so private equity funds have found themselves having to invest more of their own money, rather than relying as extensively on borrowed money.
That shift, in turn, has lowered potential returns, adding to the industry’s sense of urgency to loosen the cap on interest deductions, Americans for Financial Reform’s Carter Dougherty said.
Not only would the Wyden-Smith deal undo the tighter limit created by the Trump law, but it would do so retroactively, meaning corporations could amend their 2022 and 2023 tax returns to take advantage of the newly generous subsidies.
There are a number of angles to this story that we weren’t able to fit in the final article, so next week I’ll share some additional thoughts in this newsletter.
In the meantime, I hope you’ll read the full story here: “‘Huge tax breaks’: private equity prepares for a boon from Congress.”
Thanks as always to Dominic Rushe and the team at The Guardian.
https://itep.org/corporate-tax-avoidance-trump-tax-law
https://www.theguardian.com/business/2022/nov/20/stakeholder-capitalism-jp-morgan-walmart
https://prospect.org/economy/2024-01-18-unequal-tax-trade