In addition to carried interest taxation, two public policy issues affecting the middle market bear watching in 2016: the tax treatment of interest payments on debt and the designation of joint employer status.

Most of the Presidential candidates have proposed eliminating or capping itemized tax deductions, or allowing only deductions for charitable gifts and mortgage interest payments, according to the Tax Foundation independent research group. Republicans Donald Trump and Jeb Bush and Democrat Hillary Clinton are among those who have proposed cutting itemized deductions.

That would mean eliminating or cutting back on the ability of companies to deduct interest payments on debt, which would “dramatically alter” how capital is viewed, and it would drive up the cost of capital, says ACG president Gary LaBranche.

“The problem with a lot of these proposals is, they have an idea that would somehow impact the largest companies that they feel have a tax dodge or loophole or whatever, but they don’t really understand the broad-based implications and trickle-down effect against all businesses, especially mid-market and smaller enterprises,” LaBranche says.

On the joint employer issue, over the last 12 months, the National Labor Relations Board has issued rulings expanding the definition of “employee” to include more workers that don’t work directly for a company. In a case against McDonald’s (NYSE: MCD), the NLRB ruled that the franchisor could be held responsible for certain labor complaints made against its franchisees. In a case against Browning-Ferris Industries of California, the NLRB ruled the company was a joint employer of workers from Leadpoint, a staffing agency hired by Browning-Ferris.

For middle-market M&A, the NLRB rulings could increase the liability of private equity firms for unionization drives, health care and benefits obligations, labor complaints and worker lawsuits brought against their portfolio companies. In 2016, the Obama Administration and the NLRB will likely try to further expand and define joint employer obligations, while members of Congress will consider their own legislative proposals introduced in 2015 that would roll back the expanding NLRB joint employer definition, LaBranche says.

Public policy has been an increasingly significant focus of the ACG for several years. The global organization, which boasts 90,000 middle-market dealmakers as members in 57 chapters, became an official federal lobbying agency in 2013. With a new office opening Washington, D.C., and the promotion of Amber Landis to vice president of public policy, the group will have new resources to advocate for the middle market in 2016.

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