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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region Forums'Huge tax breaks': private equity prepares for a boon from Congress
Billions in private equity and corporate taxes could be rolled back, along with what critics say is a sop for child tax credits
Adam Lowenstein in Washington
Fri 1 Mar 2024 07.00 EST
Some of largest and most profitable companies in the US are primed to save billions of dollars from a congressional tax deal that critics say gives billions in tax credits to the biggest corporations while giving pennies to middle-class children and families. And private equity funds could be among the deals biggest beneficiaries, a Guardian analysis suggests.
The tax cuts passed the House of Representatives at the end of January as part of an agreement that pairs handouts for businesses with a moderate expansion of the child tax credit. The Senate could vote on the bill over the coming weeks, and the White House has indicated that Joe Biden would sign it into law.
The deal, led by Democratic senator Ron Wyden and Republican congressman Jason Smith the chairs of Congresss tax-writing committees would roll back a series of tax measures that were designed to partially offset the cost of the 2017 Trump tax cuts.
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In a statement to the Guardian, a Wyden spokesperson said: The provision dealing with business interest was a Republican priority in negotiations, and its clear that it would become law in a Republican Congress without any matching benefit for working families. With the support of finance committee Democrats, Senator Wyden set a standard for this divided Congress that any tax cuts for corporations must be matched with an investment in children and families that the Joint Committee on Taxation scores as equal, and thats why the bill includes a child tax credit expansion that helps 16 million children from low-income families get ahead.
Smiths office did not respond to a request for comment.
https://www.theguardian.com/business/2024/mar/01/corporate-tax-breaks-private-equity
Celerity
(43,497 posts)The model of the private equity industry is often to buy public corporations, take them private and load them up with debt, said Steve Wamhoff of the non-profit Institute on Taxation and Economic Policy. These heavy debt burdens help explain why companies bought by private equity funds are about 10 times more likely than other firms to go bankrupt. The deductions that are allowed for interest expenses really make that a more viable business model, Wamhoff said.
Debt is cheaper when companies get a tax break for deducting the interest they pay on that debt, and cheaper money, which has to be repaid by their takeover targets, is what makes private equity go, said Carter Dougherty of Americans for Financial Reform (AFR), an advocacy coalition.
The magic of the private equity business model, and the way that its able to generate outsized returns, is its reliance on debt for the acquisition, said Brendan Ballou, author of Plunder: Private Equitys Plan to Pillage America. If you invest $20m in a business and get 10% returns, you only get $2m back, Ballou explained. But if, of that $20m, you actually only put up $2m yourself, you actually make 100% return. So debt, or leverage, allows you to get bigger returns than you normally would if you actually had to put up your own cash. Thats how debt can supercharge the returns of private equity, Ballou said.
SoFlaBro
(1,940 posts)SunSeeker
(51,683 posts)So we don't have to do this kind of hostage negotiation.
lostnfound
(16,189 posts)I did not realize how ordinary companies have been sliced horizontally like a cake, and the bottom layers were sold off / spun off, to private investors, leaving a sugary, empty-calorie brand layer on top for public consumption./ public trading.
Land based REITs are an example.
And theres little transparency at PE firms. When you read their annual reports and put the vertical segments together with the others that used to be all one company, it seems like smoke and mirrors designed to hide the reality.