Tax bill faces challenges beneath Trump-Musk divide

Topline

• Big, Beautiful Bill debate turns ugly

• Navigating tariff turmoil

• Crypto corner: CLARITY in the House, GENIUS in the Senate

• Push for greater retail access to private markets continues

• Carta & Mayer Brown: The Tipping Point: How the Growth of Private Equity and Private Credit Requires Rethinking Retail Investment Products and the Regulatory Framework | June 17 in NYC

• Quick hits

The debate on the Big, Beautiful (Tax) Bill is turning ugly

The Senate is on the clock to pass tax reform, but there is broadening dissatisfaction with the House-passed Big, Beautiful Bill. Deficit hawks are frustrated the text would increase the deficit by $2.4 trillion (and so are markets). Other policymakers are frustrated that certain policies, such as R&D, are limited rather than permanent. And Elon Musk is just frustrated. Senate Majority Leader Thune needs to balance these dynamics to expand certain tax provisions while increasing cuts to offset the deficit. Daunting, but that has always been the task, and one Republican leaders insist is still on track for a July 4 finish. 

The clock is not your friend: The July 4 timeline is still possible, but the longer the legislation sits out there, the more criticism it is drawing, making Senate passage even more difficult. But more critical than that, the nation will hit its debt ceiling in August. Policymakers plan to include a debt ceiling hike—or even debt limit suspension—as part of the tax package. If they struggle to make progress, the impending debt limit can help sharpen minds or put the country in a difficult fiscal and operational position if it doesn’t work. 

Reminder: The debt ceiling is the U.S.’s borrowing cap. Hitting the debt ceiling means the Treasury is unable to borrow additional funds to pay bills the country already accrued. Once the U.S. spends the remaining capital we will run out of money to pay creditors, and since we cannot issue more debt to raise capital, we will default. And to be clear, there is little to no political appetite to pass a stand-alone debt hike; policymakers want this nested in a bigger tax package. 

Why it matters: The Senate is going to look for pay-fors while driving a pro-growth tax bill. So we are doing what we always have—engaging to shape the conversation around the innovation ecosystem. Here is a rundown and state of play on our focus areas:

• Research and Development: Our goal is to enable immediate expensing of R&D costs in the year they were incurred. The House bill does this, but only for the next five years. We are working to get the Senate to make immediate expensing permanent (and possibly retroactive for small businesses). And we are getting traction, but there is much work to do.

  • Projection: R&D fix becomes permanent.

• Qualified Small Business Stock: Our primary aim for QSBS—which drives capital and talent to the startup ecosystem by exempting qualified shareholders from capital gains—is to preserve it. The provision came under fire in 2021 and has recently had detractors propose cutting it to raise money. To play defense, we are playing offense. We want more corporate entities and more transaction types to be included, as well as a phased-in approach. This is challenging given it will add to the cost. But at minimum, if we are talking about expansion, we are winning the fight on defense.

• Projection: We are successful in maintaining current QSBS treatment.

• Carried interest: Congressional Republicans do not want to curb tax treatment on carried interest, but the President does. Industry was successful in keeping this out of the House bill, but as the Senate searches for revenue, and the President keeps pushing, this remains under fire. 

  • Projection: Tough to predict. Likely remains as-is, but very much at risk.

• 199A: Section 199A provides a deduction on 20% of qualified business income for pass-through entities defined as sole proprietorships, partnerships (and LLCs taxed as partnerships), and S corporations, but this treatment expires this year. The House bill extended it and expanded it. We expect the Senate to maintain that posture.

  • Projection: 199A will be extended and expanded. 

Tariff recap:  Tariffs continue to dominate the headlines and have an impact on the innovation economy’s bottom line. Such much noise, so much uncertainty.  Carta hosted leading experts—Stephanie Brown Cripps, Partner, Freshfields; Nabeel Yousef, Partner, Freshfields; and Andrew Endicott, Co-founder and GP, Gilgamesh Ventures—to cut through that noise and help you understand:

• State of play and where we are moving

• How to assess your market position as an investor and portfolio company

• Scenario planning and taking action

The easiest decision is to wait to see what happens next. But the right decision is to understand what is happening, build your plans, and act accordingly. Our virtual event, Tariff Turmoil: Implication for Private Capital, helps inform that path. Click here to watch.

Crypto corner

• Market structure. The House Financial Services Committee held a hearing to discuss its digital asset market structure bill, the CLARITY Act. Similar efforts received a strong bipartisan vote last Congress, and while Democrats still support the policy on its merits, the Trump family crypto ventures and perceived conflicts have complicated these efforts. The committee plans to move forward with a markup next week, despite calls from the minority to delay and continue negotiations. And the Senate is expected to release its own version later this month.

• Stablecoin update. The Senate is set to vote on legislation to create a stablecoin framework—the GENIUS Act—in the coming days, though unrelated amendments concerning swipe fees and caps on credit card interest have complicated floor proceedings. And in related news, stablecoin issuer Circle soared in its NYSE debut this week.

• Additional SEC staking guidance. The Division of Corporation Finance clarified proof-of-stake protocol activities are not securities transactions, reversing policy positions taken under the prior administration.

• CFTC nom moving forward. The Senate Agriculture Committee is expected to consider Brian Quintenz’s nomination to head the CFTC next week. If confirmed, which is expected, Quintenz may be the sole member of the traditionally five-member commission, which has raised concerns given the regulator’s role in the crypto debate.

Push for greater retail access to private markets continues

The SEC held its annual conference on Emerging Trends in Asset Management, and retail access to private markets was a key area of focus. 

• SEC Commissioner Hester Peirce highlighted how the commission could help enhance investor choice and increase diversification options by permitting more investors to access private markets: expanding on-ramps for more individuals to qualify as accredited investors and expanding the ability for registered funds to invest in private funds.  

• The head of the SEC’s Division of Investment Management (who also served in this role under former Chair Gensler) also acknowledged the role private markets play in diversification, and given advances in disclosure practices by both registered and private funds, it is “appropriate to consider under what circumstances private fund investments should be available to investors who are not accredited investors or qualified purchasers.”

Why it matters: We are at an inflection point, and as private markets grow and evolve, our policy framework must as well. The momentum in both Congress and the SEC is there; the question will be how much and how fast can staff move to implement change while political winds still blow in their favor. 

For a much more robust discussion on the topic …

Carta & Mayer Brown: Discussion on private markets and private credit

On June 17, Carta Policy will join Mayer Brown and an all-star panel in New York to discuss the evolving private market landscape, recent trends in private credit, and efforts to increase retail access to private funds. Register here.

If you can’t make it to the event, but would still like to see your favorite policy team while we’re in the city, please reach out: policy@carta.com.  

Quick hits

• SEC rulemaking activity

  • SEC solicits comments on foreign private issuer definition. The commission is soliciting input on whether foreign companies that trade in the U.S. should be subject to more robust disclosure requirements, as they currently face a lighter-touch regime than U.S. companies.   

  • Form PF open meeting | June 11: The SEC will consider actions related to the compliance date for Form PF.

• DOL rescinds 2022 guidance discouraging cryptocurrency in 401(k) plans. Trump’s nominee to serve as DOL’s retirement chief also pledged to provide regulatory clarity and end ERISA litigation abuse, paving the way for 401(k)s to invest in alternative assets and crypto. 

• Accounting fraud, failed audits remain on SEC enforcement agenda. Even as priorities shift under the Trump administration, the SEC will remain focused on gatekeeper accountability.  

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