As the 2024 election approaches, private equity investors face significant uncertainty. The Harris and Trump campaigns have introduced starkly different economic proposals, including changes to corporate, capital gains, and carried interest taxes, as well as new approaches to taxing unrealized gains and implementing aggressive tariffs. Moreover, uncertainty looms over the future of the M&A landscape, regulatory approaches to emerging sectors like AI and cryptocurrency, and the long-term attractiveness of renewable energy industries bolstered by the Inflation Reduction Act.
Ultimately, each candidate’s policies stand to significantly impact everything from investment strategies and operations to portfolio company growth prospects and exit opportunities. As a result, private equity firms and their portfolio companies face considerable unknowns regarding potential regulatory and tax pressures under different administrations. That said, the fate of these proposals largely hinges on Congress. A tightly balanced Senate and House of Representatives could stall either candidate’s policy ambitions. This article examines the key proposals from each presidential campaign that could have major implications for the private equity landscape.
Private equity investors are closely monitoring the future of the Trump-era tax cuts implemented through the Tax Cuts and Jobs Act (TCJA). Key provisions that have greatly benefited the industry, such as tax breaks for research and development, bonus depreciation, reductions in the corporate tax rate, and the preservation of the carried interest loophole, could be renegotiated or eliminated, depending on the outcome of the election.
On the one hand, Trump’s plan to extend the TCJA and potentially introduce more significant corporate tax cuts would likely result in more favorable cash flow profiles for privately-backed companies. More available cash makes companies more likely to invest in growth, pay down debt, and achieve higher valuations.
This said, Trump would be inheriting a starkly different economic landscape than in 2016, marked by mounting fiscal deficits and a federal budget on an unsustainable trajectory. Economists warn that another round of large, deficit-financed tax cuts could reignite inflation and amplify the national debt. The Congressional Budget Office (CBO) projects that extending or reducing the corporate tax rate under the TCJA could push the federal debt to 211% of GDP by 2054, adding $4.6 trillion to the deficit over the next decade.
In contrast, Vice President Kamala Harris’ plan to raise the corporate tax rate to 28% has equally faced criticism from economists and the private sector. Increased tax burdens can strain balance sheets — an unwelcome consequence as many privately-backed companies are already dealing with tighter cash flows due to higher interest rates. Added financial pressures can deter investment in growth initiatives and increase consumer prices as businesses pass on the additional costs to offset their higher tax expenses.
During his 2016 campaign, Trump denounced fund managers exploiting the carried interest loophole, calling it “getting away with murder,” and pledged to eliminate the tax break. However, as president, he only succeeded in extending the asset hold period for the preferential long-term rate from one to now three years (as part of the TCJA) and has not made the issue a focal point of his 2024 campaign. As part of the Biden administration, Harris has supported efforts to close the loophole, which would involve taxing all earnings from carried interest as ordinary income.
In addition to taxing interests as ordinary income, Harris has also proposed increasing the long-term capital gains rate to 28% for all taxpayers with greater than $1,000,000 in income. This would represent the highest capital gains tax rate since 1978 if implemented along with the increased proposed net investment income tax (NIIT) of 5%. Ultimately, if enacted, these tax hikes would affect the after-tax rate of return on private equity investments, impacting how investors assess and pursue investment opportunities.
Harris’s unrealized gains proposal has drawn sharp criticism from private capital investors, who argue it could stifle innovation by taxing founders and investors on unrealized valuation gains before they are materialized. Opponents also highlight how the policy could negatively affect investment behavior, particularly in the early-stage venture ecosystem.
With unrealized gains taxed, investors may become less inclined to invest in growth-focused businesses, which often experience significant year-over-year volatility. Some critics also suggest the tax could deter startup founders from taking their companies public, compounding concerns in an environment already marked by extended hold periods for private companies that has created liquidity problems for private capital allocators.
Harris’s proposal does attempt to include an exception to mitigate these concerns. Taxpayers with net wealth over $100 million will only be taxed on unrealized capital gains if at least 80% of their wealth is held in tradable assets, such as publicly traded stocks, rather than private startup shares or real estate. However, for those with illiquid assets, a deferred tax of up to 10% would apply on unrealized gains upon exit, potentially raising the total tax to 35% (the 25% minimum tax plus a 10% deferral charge) when the asset is sold.
Additionally, the administrative complexity of the policy has also faced criticism from many private sector participants who suggest it would increase taxpayer compliance costs and strain an already overburdened IRS. For example, managing losses from declining asset values presents a significant challenge. If paper gains are taxed, paper losses would necessitate refunds for taxes paid in previous years. Issuing such substantial refunds could exacerbate budgetary concerns, particularly in a weakened economy.
Addressing the trade deficit has been a hallmark of former President Trump’s economic agenda. In efforts to boost American industries and jobs, his administration’s tariffs on steel, aluminum, and Chinese goods impacted over $380 billion in trade, raising nearly $80 billion in taxes. The Biden administration has maintained most of these tariffs but with a less aggressive approach in some areas.
Pointing to increased downstream prices for consumers and higher import costs for businesses, the wide-sweeping consensus among economists is that these protectionist tariff policies have been net negative or neutral at best. These critics note that any gains from the tariffs, such as increased jobs in some sectors, have come at high economic costs.
What would Trump’s more aggressive tariffs mean for the private sector if he returns to the White House? The key concern for private equity is the impact of higher import costs on sectors with significant exposure, such as retail, manufacturing, and industrials, which depend on intermediate inputs. Companies can respond to tariffs by absorbing the costs or passing them on to consumers.
For portfolio companies, absorbing costs directly impacts profit margins and valuations, while passing price increases to consumers can fuel inflation. The inflationary impact, though indirect, affects private equity by creating interest rate uncertainty.
A higher CPI could disrupt the Federal Reserve’s plans for rate cuts or even prompt new rate hikes. For private equity firms, these potential increases would be an unwelcome side effect of the tariffs. Over the past two years, rising interest rates have already strained dealmaking, compressed cash flows, and tightened margins for portfolio companies, posing significant challenges for the private equity industry.
Notably, revenue from these proposed tariffs is part of Trump’s plan to offset losses from his tax cuts. However, while the Tax Policy Center (TPC) estimates that these tariffs could generate approximately $3.7 trillion in gross revenue, their analysis suggests net federal revenues would be much lower, around $2.8 trillion over the next decade. Since tariffs would raise the prices of imported goods and likely pass this cost to consumers, it would lead to reduced inflation-adjusted domestic incomes and lower income tax revenues.
The FTC and DOJ’s aggressive antitrust approach under the Biden Administration has sent a chilling signal through the M&A ecosystem, adding to challenges posed by high interest rates and wide bid-ask spreads that have slowed dealmaking in recent years. Consequently, regulatory hurdles have become a significant concern for strategic acquirers, investors, and founders, as recent efforts to block high-profile transactions have highlighted the growing risks involved in high-ticket deals.
Adobe and Figma mutually terminated their merger last December after encountering regulatory roadblocks, and rumors suggest Wiz rejected Google’s $23 billion offer over similar concerns. However, while the DOJ and FTC have made headlines for targeting the ‘Magnificent Seven,’ their antitrust efforts extend well beyond the tech giants.
FTC Chair Lina Khan has also targeted private equity firms’ long-standing strategy of consolidating fragmented industries through small acquisitions. Roll-up deals have traditionally skirted regulatory scrutiny by staying below reporting thresholds. To address this, Khan’s revised 2023 merger guidelines focused on increasing transparency around such transactions by lowering the threshold for industry concentration or high market share in combined companies. This change has particularly affected private equity healthcare investing, where roll-up strategies involving dialysis clinics, hospitals, and pharmacy benefit managers (PBMs) have been scrutinized.
Many investors argue that Khan’s approach threatens the entire private investment flywheel. If startups can’t exit by selling to larger companies, returns suffer. This makes it harder for LPs to invest in private markets, stifling investment, innovation, and competition. Further, uncertainty also lingers over how Khan’s focus on private equity deals might evolve in a potential second term, particularly in healthcare — a key strategic sector for many firms.
Consequently, private market participants are watching closely as Khan’s term at the FTC nears its September expiration. A second term for Khan raises questions about the future of dealmaking and exits, with the private sector bracing for continued disruption as each candidate’s stance on the FTC remains unclear. Antitrust has not been a central focus of Harris’s campaign, and her stance on reinstating Khan at the FTC is ultimately open-ended.
While Khan is more likely to be ousted in a Trump presidency, he, too, has proven more of a critic than a friend of corporate mergers. Despite his pro-business stance, his antitrust record includes attempting to block AT&T’s acquisition of Time Warner and several notable healthcare acquisitions. Companies like DaVita, Bristol-Myers Squibb, and CVS were forced to make significant divestitures to secure approval for multi-billion-dollar acquisitions. JD Vance has also been a vocal supporter of Lina Khan’s crackdown on big tech, further raising questions about the campaign’s stance on her antitrust approach.
SEC Chair Gary Gensler’s tenure has been marked by efforts to reshape how GPs manage funds, raise capital, and communicate with LPs, alongside a push for a more active regulatory role in emerging technologies. Key initiatives include lowering the AUM threshold and requiring portfolio company-level information for Form PF compliance, updating marketing guidelines to mandate net performance calculations, and making private funds a central focus of SEC exam priorities.
Gensler’s sweeping Private Funds Rule proposal was arguably his most aggressive. The plan, ultimately overturned in a Louisiana US appeals court, would have required private fund advisers to issue quarterly statements detailing fees, expenses, and performance to investors. Additional provisions included mandatory disclosure of side letter terms, annual financial audits, and obtaining fairness opinions for GP-led secondary transactions.
These efforts have ultimately received pushback from investors who contend that higher compliance costs hurt fund returns and operations. Critics also claim these regulations disproportionately impact smaller and emerging managers, squeezing them out of the market, reducing competition, and ultimately limiting investor choice. Further, Gensler’s pointed view of regulation across burgeoning sectors like crypto and AI has raised concerns among investors about potential downstream impacts on investments, returns, and innovation in these rapidly evolving sectors.
With his term set to expire in 2026, the 2024 election raises questions for private equity investors about the future of SEC policy if Harris were to renominate him. Under Gensler, the SEC can and might still petition the Supreme Court to review the Private Funds case or propose a revised, narrower version of the rules. Uncertainty about proposals in the pipeline to support his broader private market agenda adds to ongoing concerns about future regulatory impacts.
In contrast, Trump has vowed to remove SEC Chair Gary Gensler on “day one” if re-elected and pledged to appoint “crypto-friendly” regulators, signaling a sharp shift in cryptocurrency regulation. This sentiment reflects a likely return to the deregulatory approach that characterized his first term.
The Biden Administration’s Inflation Reduction Act (IRA) has made clean energy projects significantly more financially attractive to private investors, accelerating the influx of capital into renewable energy and clean technologies. Total investment in clean technologies and infrastructure reached $493 billion in the two years following the IRA’s enactment, marking a remarkable 71% increase compared to the previous two years. Additionally, the IRA bolstered the U.S. as an internationally attractive destination for clean energy investment. In its first year, the legislation attracted an estimated $110 billion in investment inflows.
The upcoming election has introduced uncertainty for private equity investors concerning the future of the IRA. Donald Trump has publicly targeted the tax credits and subsidies that have made clean energy investments appealing, raising concerns that a repeal could disrupt the attractive return calculus of private equity in this sector. In contrast, provisions of the Inflation Reduction Act that have boosted private sector investment in renewable energy are expected to remain unchanged under a Harris presidency. However, even if Trump wins the white house, the general consensus is that a full repeal is unlikely, as numerous red and swing states have directly benefited from the IRA’s provisions.
Ultimately, the election outcome will shape critical areas across the private equity landscape, including M&A activity, regulatory oversight of important investment sectors, tax policies, and the future of industries boosted by the Inflation Reduction Act, leaving private equity firms to navigate an uncertain landscape in the coming months and year.
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