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PE pushes for two-letter tax change to save billions

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The giants of private equity are preparing to fight for two little letters. 

The $5 trillion industry is embarking on a campaign to change the way taxes for indebted businesses are tallied. Leading lobbyists want to tack two letters — DA — back to an earnings formula used to help calculate tax deductions, a change potentially worth billions. 

The idea is to account for depreciation and amortization when determining the tax deductibility of a company’s debt payments. The maximum amount any company can get in such tax write-offs is calculated as a percentage of earnings. That’s why using EBITDA – which is typically bigger than EBIT — in this process would generate heftier tax deductions.   

That means bigger tax savings for heavily indebted companies and increased returns for private equity firms that own them. It could boost tax deductions by up to 15% in some cases, according to one tally. That’s a major prize for an industry that uses leverage to juice profits.

“This is beneficial to private equity because it’s going to increase tax deductions at the companies in which they invest, which is going to increase their profits, which is what they’re concerned about,” Rebel Cole, a finance professor at Florida Atlantic University, said in an interview. 

But it’s not just a boon for buyout firms. Any business that has borrowed to fund its operations could benefit, providing the investment industry with powerful allies. 

In recent months, the American Investment Council — the lobbying giant funded by firms from Blackstone Inc. to KKR & Co. — has been coordinating with the National Association of Manufacturers to canvass Congressional support on the issue, according to people familiar with the matter. Other private equity lobbyists have been in touch with the Equipment Leasing and Finance Association, which represents companies in the $1 trillion equipment finance sector, said the people, who asked not to be named as the discussions are private. 

Private equity is shrewd to find bedfellows in manufacturers. President Donald Trump has made clear he wants to boost U.S. manufacturers as part of an “America First” agenda. The alliances allow private equity to demonstrate that the fight is broader than protecting dealmakers’ wallets.

“Almost all businesses rely on debt to finance expenses,” said Jason Mulvihill, president of political consultancy Capitol Asset Strategies, who has been involved in past fights on the matter. “Policymakers should not overly restrict the ability of companies to use debt in their operations.” 

These alliances will help amplify private equity’s voice as Congress works to deliver on Trump’s ask: “one big, beautiful” tax bill. His threat to hike taxes on private equity profits known as carried interest has already thrown the industry on the defensive. 

While the fight over carried interest commands headlines, interest deductibility arguably has more far-reaching consequences because of how many companies it would affect. Speculative-grade borrowers backed by private equity firms took out $384 billion in syndicated loans in 2024, the second-highest year on record since 2000, according to PitchBook LCD.

Plain vanilla

Today, businesses can only deduct interest expenses totaling up to 30% of plain vanilla operating income, or EBIT, from their taxable income. Depreciation and amortization allow a business to spread out the cost of things like equipment and capture the changes in value of patents and other assets. The accounting items can create a gulf between EBIT and EBITDA, especially for capital-intensive businesses.

The first Trump administration’s tax reform initially allowed businesses to deduct debt payments of as much as 30% of EBITDA, but the formula flipped back to EBIT three years ago. The change meant businesses that once subtracted an average of roughly 85% of interest payments from their taxable income could only claim 75% of those debt payments in deductions, estimates Thomas Brosy, senior research associate in the Urban-Brookings Tax Policy Center. 

The American Investment Council has told members and lawmakers it wants to bring back the Trump-era rules first spelled out in 2017. “If you want to encourage manufacturing to return to the US, these sort of provisions are important,” Chief Executive Drew Maloney said

The National Association of Manufacturers meanwhile is leading the charge in lobbying for interest deductibility. It recently hired Ernst & Young to draft a study detailing how the expiration of various Trump provisions could hurt the economy and is planning meetings this month between policymakers and its member manufacturers.

“Reinstating the ‘DA’ would reduce the cost of debt financing and make it easier for manufacturers to invest in job-creating projects here in the U.S.,” said Charles Crain, managing vice president of policy for the organization.

Other groups such as the Equipment Leasing and Finance Association are making even bolder asks. They want lawmakers to consider full deductibility on all interest payments, as was the case for years. The policy “is good for American business,” CEO Leigh Lytle said.

Restoring more generous limits stands to further add to the U.S. deficit by up to $179 billion over the next 10 years, according to a Treasury Department analysis. But higher interest rates squeezing borrowers and a weakening economy provide plenty of fodder for lobbyists looking to make lawmakers look past the fiscal downside. Politicians from both the Democratic and Republican parties have introduced bills on the matter in the past month.

“The fears of recession and the desire to reduce business debt burdens will be difficult for lawmakers to ignore,” Brosy of the Tax Policy Center said.

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GOP tax plan targets clean-energy supplies tied to China

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A Republican tax plan seeking to cut clean-energy subsidies includes provisions that threaten to cripple the incentives before they even end. 

Little-noticed restrictions in the legislation would disqualify companies from claiming key tax credits if they use components, “subcomponents” or critical minerals imported from nations including China, Russia and North Korea. 

Because much of the U.S. solar and battery industry relies on materials from China, critical manufacturing credits would be unusable well before their official sunset date. The new rules also apply to credits for nuclear, carbon capture, geothermal, heat pumps and biofuels.

The move would constitute “a complete death” for energy projects that rely on complex, global supply chains for solar cells, magnets, batteries and other materials, said Sandhya Ganapathy, chief executive officer for EDP Renewables North America. 

The legislation seeks to fund an extension of President Donald Trump’s tax cuts by rolling back $560 billion in spending on energy tax credits from President Joe Biden’s climate law. It’s slated for a vote before the Memorial Day recess at the end of next week. If passed, the legislation would head to the Senate, where Republicans plan to amend it. 

At a minimum, the foreign-entity rules “could create a cloud of uncertainty around project supply chains until the IRS issues clarifying guidance and could slow new project development,” Evercore Group L.L.C wrote in a research note Tuesday. 

The foreign-entity restrictions along with two other tweaks limiting the energy tax credits drew a rebuke from a group of 13 moderate House Republicans, who said they wanted leaders in the chamber to make changes to the bill. They stopped short, however, of saying they wouldn’t support the measure.

“While many of these provisions reflect a commitment to American energy dominance through an all-of-the-above energy strategy, we must ensure certainty for current and future energy investments to meet the nation’s growing power demand and protect our constituents from higher energy costs,” the group said in a statement, led by Representative Jen Kiggans from Virginia. 

The lawmakers also called for changes in the GOP tax plan to shift when the credits begin to phase down, using a “placed in service” standard instead of the start of construction. Analysts say the latter would limit the number of projects that could qualify and could amount to a retroactive tax for some projects that are already being built. 

The lawmakers also said the bill should be amended to give sponsors of clean-energy projects longer than two years to sell the tax credits.

The Internal Revenue Service, under the Trump administration,  may not be in a hurry to issue rules explaining how to comply with the law, said Jesse Jenkins, an assistant professor at Princeton University who specializes in energy and environmental issues. 

“That alone could be the kiss of death for these projects,” Jenkins said in an interview. “It would be pretty devastating for the manufacturing renaissance we are seeing.”

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FASB releases standard on share-based consideration

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The Financial Accounting Standards Board issued an accounting standards update Thursday to offer guidance on share-based consideration payable to a customer in conjunction with selling goods or services.

The changes aim to improve financial reporting results by dealing with the intersection of the requirements of FASB’s revenue recognition and stock compensation standards, Topics 606 and 718 in FASB’s Accounting Standards Codification.

The amendments to the two standards impact the timing of revenue recognition for entities that offer to pay share-based consideration (such as equity instruments) to a customer (or to other parties that purchase the entity’s goods or services from the customer) to incentivize the customer (or its customers) to buy its goods and services. The amendments clarify the requirements for share-based consideration payable to a customer that vests when a customer buys a particular volume or monetary amount of goods and services from the entity.

The amendments take effect for all entities for annual reporting periods (including interim reporting periods within annual reporting periods) starting after Dec. 15, 2026, but early adoption is allowed.

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New York Republicans signal $80K SALT cap could be on table

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Two New York Republicans signaled that the cap on the state and local tax deduction may rise to as much as $80,000 as GOP lawmakers from high-tax states demand a boost in exchange for their votes on President Donald Trump’s tax package. 

Representative Nicole Malliotakis said Wednesday there’s an “opportunity” to grow the $30,000 state and local tax deduction cap offered by House GOP leaders in negotiations, potentially to as much as $80,000 for couples and $40,000 for individuals. 

Fellow New York Republican Nick LaLota told Bloomberg Television later Wednesday that those limits could be on the table. 

Malliotakis signaled that could require other concessions, such as the length of time the higher cap is effective or more stringent income limits. LaLota, however, held firm, stressing that the current $10,000 SALT cap expires at the end of the year.

“Any cap on SALT provides a savings,” he said. “It is not a cost.”

Malliotakis, who represents Staten Island, cautioned that time is running short to negotiate a SALT cap increase, as demanded by lawmakers from high-tax states, following the House Ways and Means Committee’s approval of the bill earlier Wednesday. 

“The more time this takes, the more of a low sodium diet my colleagues on Ways and Means are on, you know what I mean,” Malliotakis, who sits on that panel, said. “We had to fight to get 30.”

The bill sets the $30,000 cap for individuals and couples and phases down the deduction for individuals earning at least $200,000 and couples earning twice that amount. 

Malliotakis supported the increase, but several other Republicans from New York, New Jersey and California rejected the plan as insultingly low.

The lawmakers — LaLota as well as New York’s Mike Lawler, Andrew Garbarino and Elise Stefanik, New Jersey’s Tom Kean and Young Kim of California — have threatened to reject any tax package that does not raise the SALT cap sufficiently.

House Speaker Mike Johnson needs the support of nearly all Republicans to push the tax bill, which is the centerpiece of Trump’s legislative agenda, through the chamber. On Wednesday, Johnson called the ongoing talks “very productive, very positive.” 

“We’re going to get to a point of resolution on this,” he told reporters.

The SALT lawmakers plan to meet with Johnson on Thursday morning, Lawler said.

But LaLota warned earlier Wednesday the two sides remain far apart, though he said the speaker has shown more flexibility than Ways and Means Chairman Jason Smith.

“I don’t feel like we’re close unfortunately,” LaLota said. “I feel like there’s some good faith in that room. Different than the rooms that Chairman Smith had been in before. The chairman has unfortunately been giving us faulty data, kooky conclusions. Things that can’t ever get us to yes.”

The SALT issue has been one of the most contentious for the House GOP to resolve as party leaders try to ram a multitrillion-dollar tax cut package through the House in May. The larger the cap adjustment is, the less money there will be for other tax cuts on the Republican agenda.

House Republicans are trying to keep revenue losses from their tax cut package down to a self-imposed limit of $4.5 trillion. They are also aiming for $2 trillion in spending cuts.

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