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Private equity bets on delayed tax reform in Biden administration

In normal times, private equity would be nervous about Democratic Party control of both the White House and Congress. But in pandemic-consumed 2021, the industry seems sanguine.

Driving the news: Industry executives and lobbyists paid very close attention to Treasury Secretary nominee Janet Yellen's confirmation hearings this week, and came away convinced that tax reform isn't on the near-term agenda.


The history: President Biden campaigned on a tax policy plan that was significantly worse for private equity than was Trump's.

  • He pledged to raise income tax rates on top earners, eliminate the preferential tax treatment of capital gains and increase corporate taxes (including a new minimum tax on book income).

The reality: Yellen, as expected, endorsed Biden's tax plan in her testimony. But she also said the administration's top legislative priority would be economic stimulus, with infrastructure not too far behind.

  • Both of those would be major boons to private equity, as would be greater predictability on trade policy.

The bet: Private equity is keeping its fingers crossed that tax reform gets pushed off for at least a year, at which point election politics might interfere. And then, in the industry's best-case scenario, Republicans then regain control of at least one house of Congress.

The counterargument is that election season might embolden Democrats to raise taxes on the wealthiest Americans, particularly after its stimulus spending spree.

  • There also are some concerns about Gary Gensler as SEC chair. Like Jay Clayton, he knows where some private equity bodies are buried. Unlike Jay Clayton, he might be eager to dig them up.

The bottom line: Private equity is a long-term asset class. But for now it's banking on the short-term.

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