Election Spotlight: Businesses of All Kinds Will Face a Tax Increase, If No Action is Taken

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As the presidential election looms, we turn to Pam Hendrickson, the Riverside Co.’s COO and vice chairman, strategic initiatives, who serves as a member of the board of the American Investment Council and is a voice for the PE industry on public policy.

What public policy issues are PE pros thinking about?
Our industry plays a significant role in the investment environment, economic recovery, and retirement security. At Riverside and the American Investment Council, we are continuing to educate policy makers about how our industry employs millions of Americans, provides long term capital that can spur economic recovery, helps growing companies, and strengthens the retirement of millions of public sector workers through their pensions. Our industry must be engaged managing political risk and promoting our positive impact. This is an ongoing process and we must remain engaged before, during, and after election day.

What regulatory issues are you watching?
Pre-election, we are focused on whether regulators will finalize any pending proposals. These include proposed tax regulations to implement the carried interest and interest deductibility provisions from the 2017 Tax Cuts and Jobs Act and modernizing auditor independence, among others. After the election, regardless of outcome, there will be changes in regulatory personnel and priorities. As always, we will continue to engage directly with regulators and policymakers to protect our license to operate and ensure that private equity remains the best performing asset class for pensions and other long-term investors. Every year, the private equity industry invests in thousands of U.S. companies in every sector of the economy. We care about many issues impacting businesses outside of financial services – businesses in the healthcare, manufacturing, technology, retail, education, hospitality, housing, and energy sectors.

What tax changes might we see?
Both candidates have specific tax policy proposals that they will try to get through Congress. Regardless of who wins the election, there will be tax challenges ahead due to current law provisions that are set to change at the end of 2021. A good example of this is the 30 percent of EBITDA interest deductibility limit that is currently set to become a 30 percent of EBIT limit. If no action is taken to address this issue, businesses of all kinds will essentially face a tax increase. Our hope is that policymakers from both parties will come together to avoid this outcome, advance policies that encourage new investment across America, and maintain the competitiveness of our tax system.

How is renewed attention to equality and inclusion playing out?
Members of the American Investment Council agree that we have to increase diversity at our firms and across the entire industry – and we are taking steps to do so immediately. Recently, several members of the AIC and other private equity firms announced a new partnership with Diligent Corporation, a leading modern governance company, to join their Modern Leadership initiative. This partnership requires firms to commit to posting open board opportunities specifically for diverse candidates within the Diligent Director Network. This is just one of the steps we are taking to improve our record on diversity. We will be engaging on this issue in the years to come so that our policymakers and limited partners understand our strong commitment to increasing diversity throughout our industry.

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