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 US 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 US,” 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 the US 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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