Republican lawmakers in the House of Representatives are pushing for a tax break that could hand billions to private credit investors.
Tucked into the House spending package passed last month, the proposed measure would slash taxes on dividends paid by business development companies—investment vehicles that have become central to the booming private credit industry. The provision was not included in the Senate’s version of the bill, introduced last week, but could eventually make it into the final bill.
The congressional Joint Committee on Taxation estimated that the break would cost the federal government $10.7 billion over the next decade.
The proposed change would exempt a portion of dividends from income tax. The change would align BDCs with real estate investment trusts, which won a similar break in the 2017 Trump tax law.
The break would likely attract more investment and capital into BDCs, which have drawn interest from institutional investors, pension funds and endowments for their high yields.
According to a June 2 report by S&P Global, BDCs had an aggregate portfolio of $440 billion at year-end 2024, while growing to 140 BDCs, nearly double the amount of their holdings in 2021. Despite the recent growth, the S&P BDC Index’s one-year return, as of June 23, was down 6.29%.
Whether the tax break survives the legislative wrangling remains uncertain. But its presence in the House bill signals continued Republican support for private finance.
Another measure that would benefit alternative investment managers was omitted from both the House and Senate versions of the bill. President Donald Trump expressed, both in his 2016 campaign and earlier this year, support for closing the tax loophole for carried interest. The tax provision benefits the private equity industry by allowing certain income earned by private equity investment managers to be taxed at the 20% long-term capital gains rate, instead of at the income tax rate, which can be up to 37%.