Research Highlights

Do We Need to Reform Private Equity Tax Benefits to Better US Economy and Society?

gupta howell headshots

Overview: In “The Role of Private Equity in the U.S. Economy, and Whether and How Favorable Tax Policies for the Sector Need to be Reformed,” NYU Stern Professors Arpit Gupta and Sabrina Howell discuss the various tax benefits that the private equity (PE) industry enjoys and the impacts of those advantages on the US economy and society as a whole.

Why study this now: PE firms conduct deals worth over $1 trillion each year, and have an increasingly influential role in the US economy. A large part of success seen in PE is due to the special tax benefits these firms receive, e.g. paying lower taxes on their profits, and tax deductions on loan interest.

While beneficial for PE firms, these tax advantages can have negative effects on US society, like exacerbating wealth inequality, reducing available government revenue that could be used to fund programs like healthcare and defense, and encouraging short-term profits instead of long-term sustainability.

What the researchers argue: Gupta and Howell say that changes to the rules for PE firms can be made so that there are more equitable tax policies for all people while still keeping PE a viable asset class. Recommendations include:

  • Improved data collection to accurately measure the impact of existing tax advantages on PE firms, investors, and society
  • More transparent regulations that are applicable to all firms and make it easier to enforce tax laws
  • Increased funding to the IRS for law enforcement


Key Insight: “While private equity generates high returns and contributes to economic growth, policymakers need to carefully consider the broader implications of subsidizing the industry through the US tax code,” say the authors. “Policymakers should balance the interests of private investors with the broader public interest and consider the potential positive impacts of tax reform.”

This report was originally published by the Washington Center for Equitable Growth.