PE Goes After a Two Letter Tax Change to Save Billions

Private Equity is back in D.C., not for a hostile takeover, but a high-stakes tax tweak that could fatten its bottom line by billions. The $5 trillion PE industry is pushing to revive a seemingly minor accounting detail with major financial consequences: adding “DA”, depreciation, and amortization—back into the interest deductibility formula for corporate taxes. What sounds like alphabet soup is a multi-billion-dollar shift that could reshape how U.S. businesses use debt while sparking one of the biggest tax showdowns of 2025.

A Tax Write-Off Glow-Up

Right now, companies can deduct interest payments on loans only up to 30% of their EBIT (Earnings Before Interest and Taxes). But PE firms want to flip the script back to the earlier Trump-era rule—using EBITDA instead. Why? Because EBITDA is almost always a larger number than EBIT, meaning bigger write-offs and smaller tax bills. According to the Urban-Brookings Tax Policy Center, the switch back could boost deductible interest payments from an average of 75% to 85%, a clean 15% jump that would hand leveraged companies, especially those in PE portfolios, a sizable tax break.

“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,” said Rebel Cole, finance professor at Florida Atlantic University. Translation? Private equity gets richer, faster. But while manufacturing and private equity are team EBITDA, not everyone’s popping champagne:

• Tech Companies (low-debt, high-margin): Neutral to opposed. They rely less on interest deductibility and may lose out if public funds shift toward tax breaks.
• Retail Chains: Mixed. Some, like department store giants, could benefit from the change, while others operating with tighter margins see limited upside.
• Small Businesses: Mostly left out. Without complex financing or heavy capex, this policy does little to move the needle.

And this isn’t the first time the rules have shifted. The 2017 Tax Cuts and Jobs Act temporarily allowed deductions based on EBITDA, but that reverted to EBIT in 2021, reducing what companies could write off. Before 2017? Interest was fully deductible. So, this push is really about bringing back a more generous era of tax breaks.

It’s Not Just the Suits on Wall Street

This isn't just a Wall Street buffet. Other capital-heavy sectors are salivating over the potential change:

• Manufacturing: The National Association of Manufacturers argues that restoring “DA” could lower financing costs and support domestic reinvestment.
• Real Estate: Big developers would get relief on interest-heavy construction loans.
• Energy & Transportation: From oil rigs to trucking fleets, depreciation-heavy businesses want this rule flipped yesterday.
• Equipment Leasing: The Equipment Leasing and Finance Association is even asking for full interest deductibility—throwing it back to the pre-2017 era.

“If you want to encourage manufacturing to return to the U.S., these sorts of provisions are important,” said Drew Maloney, CEO of the American Investment Council, which represents firms like Blackstone and KKR. These groups are teaming up to convince Congress this is more than a Wall Street wish list.

Debt’s Back

Private equity firms loaded up in 2024, fueling a record-setting $384 billion in syndicated loans by speculative-grade, PE-backed companies, according to PitchBook. That’s a whole lot of borrowed dough. Reintroducing “DA” sweetens the deal even more, making these high-leverage strategies even more tax-efficient. But here’s the kicker: the Treasury Department estimates this change could add $179 billion to the U.S. deficit over the next decade. And in an era of rising interest rates and recession jitters, the political appetite for fiscal leniency is already on thin ice. So, while Wall Street may love this move, Main Street may be footing the bill.

Playing 4D Chess or Gaming the System

Let’s be real: PE’s strategy is sharp. They’ve partnered with manufacturing groups to paint this change as a job creator and growth enabler. But skeptics see a different picture, one where the biggest tax savings go straight to firms already crushing it in the profit department. And this isn’t happening in a vacuum. While headlines shout about carried interest loopholes, this “DA” battle may have wider implications, affecting thousands of businesses, not just high-flying dealmakers. As Jason Mulvihill of Capitol Asset Strategies said, “Policymakers should not overly restrict the ability of companies to use debt in their operations.” The question is, how much is too much?

What This Means for the Economy

 Short-Term Gains:

• Businesses could have more free cash flow to invest in operations, tech, or hiring.
• Some capital-heavy industries may scale faster with lower after-tax debt costs.

Long-Term Concerns:

• Encouraging more debt could increase systemic risk, especially in a high-interest-rate environment.
• A growing deficit could limit future fiscal tools during recessions or emergencies.
• Disproportionate benefits to big players could hollow out competition, reducing innovation and market diversity.

As Thomas Brosy of the Tax Policy Center warned, “The fears of recession and the desire to reduce business debt burdens will be difficult for lawmakers to ignore.” But is a short-term sugar high worth the long-term risk?

Final Take

Restoring “DA” to the interest deductibility formula could help manufacturers, encourage capital investment, and reduce borrowing costs. But let’s not kid ourselves—private equity would be the biggest winner in this tax remix. It’s a classic tussle between economic growth and fiscal responsibility, between supporting real investment and encouraging financial engineering. And with Congress under pressure to deliver “one big, beautiful tax bill,” expect this debate to get louder. Want more expert takes like this? Sign up for the MYCPE ONE Insights newsletter and never miss a financial trend that matters.