Congress Should Close Wall Street Tax Loopholes, Not Offer More Tax Breaks for Billionaires

By Oscar Valdés Viera

This week, Congress will start considering the tax provisions of the reconciliation legislation, Trump’s “big beautiful bill” that will slash safety net programs and further dismantle agencies like the Consumer Financial Protection Bureau in order to pay for tax breaks for wealthy families and corporations. There is an enormous amount at stake, and we want to make sure that the debate also includes the fate of tax breaks for Wall Street firms that reward and encourage some of their most predatory and extractive business models. Members of Congress should be pushing to eliminate them!

Essentially, the tax code currently subsidizes the already wealthy firms that takeover and shutter our hospitals, buy up our neighborhoods and jack up rents, cost us our jobs when they drive employers into bankruptcy, and finance the expansion of fossil fuel extraction driving the climate crisis. That makes no sense. Congress needs to close these loopholes forever to make the ultra-rich pay their fair share and begin transforming the financial system so that it supports communities, workers, and long-term economic growth.

Wall Street didn’t just find loopholes in the tax code—Congress has larded up the tax code with tax breaks that benefit rich donors like private equity and hedge fund executives. These Wall Street moguls exploit a rigged system to siphon billions from public coffers while fueling financial predation, short-term speculation, layoffs, and inequality. It’s the result of decades of policy choices that reward wealth over work and financial extraction over investment. Here are some tax subsidies and loopholes that should be closed to end Wall Street abuses of the tax code to enrich itself at everyone else’s expense. 

1. Carried Interest Tax Loophole 

Private equity executives rake in millions through performance fees—but unlike nurses or teachers, they don’t pay ordinary income tax rates on their pay. Thanks to the carried interest loophole, they get to misclassify a big chunk of their earnings as long-term capital gains and cut their tax bill nearly in half. It’s a handout for the ultra-wealthy that undermines basic fairness in the tax code. Treating carried interest earnings as ordinary income could raise some $6.5 billion over ten years. 

2. Interest Deduction 

When private equity firms take over a company, they load it with debt—and the tax code helps them do it. Some of the interest paid on that debt is tax deductible, turning the IRS into a silent partner in predatory buyouts, while the target companies are forced to slash jobs, sell off assets, and postpone necessary investment in order to service the debt.

Allowable Interest deductions are calculated as a percentage of revenues, so if the private equity firms are allowed to use a bigger earnings calculation, they can deduct more interest (you know how complicated the tax rules are). This private equity tax break fight is over whether to limit interest deductions using a lower earnings measure (known as EBIT, or earnings before interest and taxes) or a much bigger earnings measure (known as EBITDA, or earnings before interest, taxes, depreciation, and amortization). The 2017 Trump tax giveaway allowed private equity firms and other companies to use the higher earnings metric to calculate far larger interest deductions, but it expired in 2022 because it was so expensive to subsidize private equity’s debts. It may sound technical, but it’s really about whether the public should have to pay to expand subsidies for private equity’s leveraged buyout model. Congress should block efforts to restore this tax giveaway to private equity.

3. Fee Extraction

The tax code allows the private equity industry to disguise some of its income and reduce its tax bills. Private equity firms drain portfolio companies through dubious fees like so-called monitoring fees—charges for vague consulting services that are really just dividends (and thus taxable income) under another name. But because these fees are a deductible cost, private equity firms extract wealth while shrinking the taxable income of the companies they own (which essentially is a tax break for the private equity owners). This giveaway erodes the tax base and gives the private equity firms additional resources to plunder. One study found that private equity firms were extracting $1 billion a year in untaxed fees that should have been considered income. Taxing these excessive fees at 100 percent, as the Stop Wall Street Looting Act proposed, would rein in this practice and ensure private equity isn’t rewarded for hollowing out their takeover targets.

4. Stock Buybacks

Stock buybacks are forecasted to hit a record $1 trillion in 2025—fueled by  windfalls from a deep cut in the corporate tax rate. Instead of investing in workers, innovation, or productive capacity, firms use buybacks to juice executive compensation, manipulate market valuations, and reward insiders in private transactions. The Inflation Reduction Act of 2022 added a 1 percent tax on corporate stock buybacks—a small but important step toward curbing this wasteful practice. Lawmakers have since proposed going further. The Stock Buyback Accountability Act (S.413) would raise the tax to 4 percent, a change projected to generate $166 billion in revenue over the next ten years while encouraging companies to reinvest in workers and innovation instead of inflating their stock prices.

5. Executive Compensation

The tax code allows companies to deduct sky-high executive pay—including stock options and performance bonuses—as if they’re ordinary business expenses. It’s an unjustified subsidy that encourages corporate greed and fuels inequality. Policymakers should end these special exemptions and adopt surtaxes on excessive compensation packages that often reward CEOs for cutting jobs, raising prices, or engaging in risky financial maneuvers. While there’s technically a $1 million cap on the amount of executive pay that public companies can deduct for certain top officers, many loopholes still allow excessive compensation to slip through. This means working families’ taxes are subsidizing the bonuses paid to millionaire executives. And private firms—including many of those owned by private equity firms—aren’t even subject to these limits, meaning they can continue writing off massive CEO pay packages as ordinary business expenses. Congress should tighten the rules to stop tax subsidies to corporate fat cats.

6. Wealth Tax

While working people pay taxes on every paycheck, Wall Street billionaires can accumulate enormous wealth—often untaxed for years. A modest tax on extreme wealth would help rebalance a system that’s tilted too far toward inherited and accumulated fortunes. It’s not just a revenue issue—it’s about democracy, fairness, and whether the rules apply to everyone.

7. Financial Transaction Tax

Every day, Wall Street firms make millions of trades that serve no productive purpose—just speculation and short-term profit. A small tax on each financial transaction—just pennies per $100—would curb high-frequency trading, raise hundreds of billions in revenue, and begin to reorient the financial system toward long-term investment.

8. Corporate Minimum Tax Loophole for Private Equity

The Inflation Reduction Act of 2022 aimed to stop highly profitable corporations from paying little or no federal income tax. One of its key reforms was a 15 percent minimum tax on companies making over $1 billion a year in profits reported to investors—often called “book income.” But at the last minute, private equity firms lobbied successfully for a loophole. Instead of counting the total profits of all the companies they own, the law allows them to count each company’s profits separately. That means most private equity firms can sidestep the $1 billion threshold—and avoid paying the new minimum tax entirely. Congress should close this loophole and require all firms throwing off $1 billion in profits to pay corporate income taxes.

9. IRS Enforcement Underfunding

None of these loopholes would be as lucrative without chronic under-enforcement. For years,
Wall Street has operated with little fear of oversight, thanks to decades of IRS budget cuts and political sabotage. As a result, audit rates for complex pass-through businesses like private equity firms have dropped by 40 percent since 2010 to a level which a former IRS official described as “almost nonexistent.” Tax avoidance schemes create a $75 billion annual loss from underreported partnership income—90 percent of which flows to the top 1 percent, who, in total, are dodging $160 billion in taxes every year.

Congress has already effectively rolled back nearly $42 billion in enforcement funding from the Inflation Reduction Act —kneecapping the agency’s ability to audit wealthy individuals and corporations. We know enforcement works: for every dollar the IRS spends auditing high-income earners, it brings back over $22 in revenue. The Trump IRS budget cuts and staff purges could encourage tax scofflaws who think they can get away without complying with tax laws. The Yale Budget lab estimates that the combination of IRS downsizing and people flaunting the IRS could cost us $2.4 trillion over the next decade. Congress should restore IRS funding and focus resources on complex firms like private equity.

●  ●  ● 

Congress has bestowed giant, unjustified, and unfair tax breaks on Wall Street’s biggest firms and executives that incentivize financial predation and worsen economic inequality. These are entirely reversible political choices. By closing loopholes, taxing extreme wealth and excessive compensation, and investing in real enforcement, we can stop subsidizing predation and rewarding wealth over work. Members of Congress should be advocating and voting for a tax code that works for all of us and isn’t just a mountain of tax breaks for the very wealthiest companies and Wall Street moguls.

###