September 16, 2015
Andrew Ross Sorkin has a good piece today pointing out that Jeb Bush’s tax plan calls for ending the deductibility for corporate interest payments. Under the current system the tax code effectively gives encouragement for companies to borrow, since the interest they pay is tax deductible.
Private equity companies take advantage of this provision, routinely having the companies they acquire borrow as much as possible, often to make payments to the private equity company. This leaves the acquired company vulnerable to any business downturn, which is why many acquired companies go bankrupt.
The interest deduction is a large part of private equity profits in many cases. Since some private equity partners are among the richest people in the country, ending this deduction would be enormously progressive. It would put an end to a practice that has allowed many private equity partners to make hundreds of millions or even billions by gaming the tax code.
Comments