By Kristen Kelly, Co-Founder of The Wall Street Skinny
Let me walk you through one of the juiciest (and most misunderstood) finance policy fights happening right now: private equity firms are pushing for a simple tax rule change that hinges on just two little letters — D&A.
If you’re thinking, “That sounds dry,” stick with me. This story has it all: accounting loopholes, Trump-era tax cuts, billion-dollar implications, and a classic finance term showdown between EBIT and EBITDA.
If you’re not familiar with the finance lingo, here’s a quick breakdown. EBIT stands for Earnings Before Interest and Taxes. It’s essentially what a company earns from operating its business. EBITDA, on the other hand, adds back Depreciation and Amortization—those non-cash expenses—making it a rough proxy for operating cash flow. Since EBITDA includes D&A, it’s always going to be higher than EBIT. And when it comes to calculating tax deductions, that difference matters a lot.
Prior to 2017, companies could deduct all the interest they paid on their debt. So if a company earned $100 and paid $100 in interest, they could deduct it all and pay zero taxes. But that changed with the 2017 Trump tax cuts. From 2018 to 2022, companies were limited to deducting only up to 30% of their EBITDA. That was still manageable. But starting in 2023, that limit was reduced to 30% of EBIT. Removing D&A from the calculation means companies—especially those with heavy debt—are now facing much higher tax bills.
Let’s use a simple example. Say a company has EBIT of $100 and D&A of $50. That makes EBITDA $150. Under the old rule, they could deduct 30% of $150, or $45. But under the current rule, they can only deduct 30% of $100, or $30. So instead of paying taxes on $55 of income, they now pay taxes on $70. That extra $15 might not sound like much, but when you scale that across the thousands of companies backed by private equity, it adds up fast.
This is a big deal for private equity firms because they specialize in leveraged buyouts—buying companies using a lot of debt. So they not only have bigger interest payments, but now they’re allowed to deduct less of it. With interest rates rising, the pain just keeps growing. That’s why they’re lobbying hard to bring D&A back into the equation, restoring the deduction cap to 30% of EBITDA instead of EBIT.
According to the U.S. Treasury, if this change goes through, it would increase the federal deficit by an estimated $180 billion over the next decade. That’s billion with a “B.” It’s a classic policy debate: Should we support business growth through debt-fueled deals, or close what critics argue is a massive tax loophole?
Whether or not this change is approved will have huge implications—for tax burdens on private equity portfolio companies, for how future deals are structured, and for the future direction of Trump-era tax policy. If you’re studying for finance interviews, analyzing tax strategy, or just curious about how two little letters can shift the entire financial landscape, this is a story worth understanding.
Watch my full breakdown here:
Original coverage: Private Equity Pushes for Two-Letter Tax Change to Save Billions – Bloomberg, March 24, 2025
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