Congressional tax reform proposals' impact on Private Equity

November 2017

Overview

On November 16, the Senate Committee on Finance passed its version of the ‘Tax Cuts and Jobs Act’ (Senate Plan). Also on November 16, the House of Representatives passed the ‘Tax Cuts and Jobs Act’ (HR 1 or House Bill).

The Senate is expected to consider floor amendments to the Finance Committee-approved tax reform bill during the week of November 27, following Congress’s Thanksgiving holiday recess week. Once the Senate has approved its tax reform bill, the two chambers must reconcile differences between the two bills and then vote to pass a final bill in identical form before tax reform legislation can be signed into law by President Trump. If enacted into law, a final 2017 tax reform bill would represent the most significant tax reform since 1986, and would impact individuals and many industries, including private equity. Below is a brief summary of select provisions in the Senate Plan that are most relevant to private equity.

For background and a broad overview of the House and Senate Plans, please see PwC’s Tax Insights House passes tax reform bill and Finance Committee approves tax reform bill.  For additional detail on the House Bill provisions most relevant to private equity, see the PwC Insight ‘Brady bill impact on private equity’ published November 7, 2017.

Currently, the proposals indicate that they will be generally effective for tax years beginning after 2017. Certain provisions have separate effective dates, most are after date of introduction, but others are effective after the date of enactment and some are effective for tax years beginning after 2016. Notably, the Senate Plan provides that the reduction of the corporate income tax rate will take effect for years beginning after 2018 (rather than after 2017 as in the House Bill). The proposals also include some temporary measures that provide transition rules. Under the Senate Plan, many of the provisions affecting the income taxation of individuals would sunset after 2025.

Finally, it should be noted that the Senate Plan, as amended on November 14, includes a provision repealing the Affordable Care Act’s individual mandate. The Joint Committee of Taxation (JCT) estimates this provision would raise $318.4 billion of additional revenue over 10 years. The House Bill does not include a similar provision. This provision has the potential to further complicate efforts to pass the Senate Plan and, ultimately, to pass tax reform.

The takeaway

With the passage of the Tax Cuts and Jobs Act in the House and the approval of the tax reform proposals by the Senate Finance Committee, there is significant momentum to enact legislation before the end of 2017 that will greatly impact the US tax system. There are still a number of hurdles remaining before enactment of any legislation.

The Senate is expected to consider floor amendments to the Finance Committee-approved tax reform bill during the week of November 27, following Congress’s Thanksgiving holiday recess week. Once the Senate has approved its tax reform bill, the two chambers must reconcile differences between the two bills and then vote to pass a final bill in identical form before tax reform legislation can be signed into law by President Trump. For our most recent updates, please see Inside Tax Policy: Watch policy unfold.

Private equity fund managers should continue to assess how the tax reform provisions would impact their firms, their investments and their investors, and monitor the legislative process as it continues to develop.

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Andrew Cristinzio
US Private Equity Leader
Tel: +1 (703) 918 1474
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