Capitol Watch: Tax Winds Shift Toward Private Credit Investors

Congress is evaluating a significant tax cut—possibly exceeding $10 billion—for investors in private credit, by making Business Development Companies (BDCs) dividends tax-exempt. First approved by the House, the provision was removed from the Senate draft but may be reinstated amid ongoing budget negotiations.

Why now? The backstory

• BDCs explained: BDCs are public vehicles that funnel capital into private credit—loans to mid‑sized firms that banks often avoid. Over the past year, they attracted roughly $44 billion in new fundraising—an increase of more than 70% .
• “REIT parity” push: Proponents argue for equal treatment with real estate investment trusts—a precedent set under Trump’s 2017 Tax Cuts and Jobs Act.

The numbers behind the headlines

• Budget hole deepens: The non-partisan Joint Committee on Taxation estimates this carve‑out will cost $10.7 billion through 2034. Meanwhile, the Congressional Budget Office warned that the entire bill—including related tax provisions—could add $2.4 trillion to the national debt by 2034, with little economic gain.

Pressing concerns

• Critics speak out:
  • Sen. Elizabeth Warren called the proposal “massive tax breaks at the expense of healthcare, education and food assistance,” emphasizing that BDCs don’t need the break, but working families do.
  • NYU’s Brandon DeBot warns it “reduces resources for the lowest‑income households overall, while providing large tax cuts for high‑income taxpayers and … private investment fund investors”.

Private credit’s counterpoint

Supporters—including Blackstone, Apollo, Ares, and Blue Owl—assert that a tax-exempt dividend structure would better mobilize capital toward U.S. companies, aligning incentives much like the REIT tax structure.

Political tug-of-war

• House vs. Senate:
  • The House included the benefit.
  • The Senate Finance Committee initially rejected it due to the high cost, but lobbyists are pushing a revised, more limited iteration.
• Broader budget trade-offs:
  • Proposed cuts exceed $1 trillion from Medicaid and food assistance by 2034.

🔍 What’s Ahead

As lawmakers debate amendments to President Trump’s flagship budget, this tax carve‑out remains under intense scrutiny. Will final lawmakers reinstate it—and if so, will the long-term cost outweigh the potential economic benefits? Watch for a showdown in the Senate, possibly tied to changes in Medicaid and SNAP policies.

✅ What You Should Know