Welcome to Dry Powder. I’m Bill Cohan, back in New York, where Wall Street is abuzz over a new tax provision in Trump’s “Big Beautiful Bill” that disproportionately targets New York City. Does Trump even know the glitch exists, as one executive wondered aloud to me? And can the Senate fix it? (Meanwhile, the private equity contingency of this readership already knows that the current bill offers no harm to the big, beautiful carried interest loophole.) Also, for readers in Greenwich and Rye and the surrounding area, I’ll be speaking on a panel at Digital FutureFest on June 4 at UConn Stamford. Subscribers can receive a 50 percent discount on tickets by applying the code PUCK_50 to this link. Now, on to Trump’s tax plan. But first…

Ackman shorts Harvard: I know a few of my faithful followers are getting more than a little sick of reading about Bill Ackman and his latest pronouncements. I get it, believe me. He’s always up to something, loves the limelight, and seems to thrive on making controversial, on-the-record, often outrageous statements. Like him or not, though, you can’t argue with his stellar 35-ish-year track record as a hedge fund investor—notwithstanding his $5 billion face-plant on Herbalife and Valeant Pharmaceuticals, which likely would’ve spelled the end of the line for most other hedge fund managers. Last week, in a conversation with the historian Niall Ferguson at Bari Weiss’s University of Austin (Ferguson is also one of the trustees), Ackman went on the attack against Harvard. Ackman, who holds a B.A. and M.B.A. from Harvard, has been on a warpath against his alma mater since October 8, the day after Hamas’s attack against Israel killed some 1,200 innocent civilians. Ackman said he was fresh off reading Harvard’s recent bond prospectus, issued as the university seeks to raise $750 million amid Trump’s efforts to curtail its federal funding. “The problem [for] the Harvards of the world is people think, a $53 billion endowment—you know, I don’t want to use an untoward expression—[is] sort of F-you money,” Ackman said, “and it creates the opportunity for university independence. But it’s not actually the case.”Ackman told the audience that some 80 to 85 percent of Harvard’s $53 billion endowment is in illiquid private equity, venture capital, and real estate investments. He said that Harvard was trying to sell a $1 billion slice of that portfolio—Yale, he said, was trying to sell a $6 billion slice of its illiquid portfolio—and he was sure that these investments were not marked to market. In other words, Harvard and Yale have these illiquid investments marked on their books at a higher valuation than they are likely to fetch in the secondary market, should they ultimately sell, or even if they hold them until realized. “One thing I believe is that the private equity portfolios, the real estate portfolios, the venture capital portfolios are mismarked,” Ackman said. Ferguson asked him how big the discount will end up being to sell these portfolios. Without flinching, Ackman said 40 percent. “Every institution is completely full up with private equity,” Ackman continued. “No one wants incremental exposure to private equity. … My guess is that Yale chooses not to transact, and Harvard may do the same because they don’t want to report the figure.” He said that Harvard has been “meeting its obligations” by issuing debt—nearly $8 billion worth—despite having the $53 billion endowment. He said the most recent debt issuance by Harvard carried a coupon of around 5 percent for a AAA-rated institution. (“Not a kind of low sort of coupon.”) He also suggested that Harvard’s debt issuance would turn off the donor class at Harvard—Ackman himself has gifted around $25 million to the university—because their gifts would be used, in part, to pay interest to the university’s bondholders. “My experience with charity or nonprofits that have large amounts of debt—it’s a death spiral,” he continued, “because the donor doesn’t want to give money … to pay interest expense.” And if Harvard’s tax-exempt status gets revoked—as Trump is also threatening—that would be potentially existential, at least according to Ackman. Meanwhile, at least according to Ferguson, Ackman has just pledged $10 million to the University of Austin. So Ackman is short Harvard and long Austin, which perhaps too neatly mirrors his general frustrations with his alma mater. “It has saddened … me to watch Harvard, a university that I love [and] from which I have greatly benefited, self-immolate through gross mismanagement, poor governance, and ideological capture that have occurred over the last 15 or so years,” Bill tweeted on Monday morning after his talk in Texas. Strange times, indeed.

Trump’s Wall Street Tax Glitch

While everyone’s focused on the fate of the SALT deduction in Trump’s tax bill, a similar but lesser-known provision could punish a range of businesses, from high-powered law firms and hedge funds to even your local chiropractor, while leaving corporations unscathed.

William D. Cohan

Buried deep inside Trump’s “Big, Beautiful” tax bill is a provision that has the professional class up in arms across the country, as it seems to unfairly target them for a big, beautiful, tax increase while others get a big, beautiful cut. You will remember, from Trump 1.0, when the president decided to penalize residents of high-tax states such as New York and California—who, perhaps incidentally, did not vote for him either in 2016 or 2024—by capping at $10,000 the amount of state and local taxes (SALT) that they can deduct from their federal returns. In the new tax bill, Trump and his House Republican allies have sought to make that provision more accommodating. The cap now will be $40,000 for married couples filing jointly. (Unless you and your spouse, filing jointly, make more than $600,000 per year—then you are back at the $10,000 cap. Don’t ask me why.) But that’s not the issue. Instead, the professional class is pissed about a provision in the bill that would no longer allow people who work in so-called “specified service trades or businesses,” or S.S.T.B.s in tax-code argot, from deducting more than the old $10,000 in SALT payments on their federal tax returns. That’s a big change from current law. Unless the Senate intervenes, small profitable business partnerships will pay their state and local taxes, but will no longer be able to deduct the vast majority of those payments on their federal tax returns. I can hear the howling already. S.S.T.B.s, after all, comprise the backbone of the American economy: medical professionals (offices of doctors, pharmacists, nurses, veterinarians, dentists, physical therapists, psychologists, chiropractors, etcetera); financial services professionals (offices of accountants, bookkeepers, tax preparers, auditors, actuaries, financial planners, retirement advisors, and so forth); and legal services professionals (offices of lawyers, paralegals, arbitrators, mediators, estate planners, yada yada). If the Paul Weisses, Skadden Arpses, and Simpson Thachers of the world didn’t already have enough to worry about thanks to Trump 2.0, now they’re facing the prospect of paying millions more in federal taxes than they have previously. “By and large, these companies are organized as S-corporations and partnerships … and could populate any Main Street in America,” Ryan Ellis, the president of the Center for a Free Economy, wrote recently in National Review. Worse, the House version of the bill allows corporations to deduct paid state and local taxes from their federal returns. The CVS across the street from the local pharmacy will get to keep the deduction. IBM, GE, and Microsoft get to keep the deduction. Local law partnerships and local groups of professional doctors or dentists, however, do not. Hedge fund partnerships, such as Bill Ackman’s Pershing Square or Paul Singer’s Elliott Management, would also be affected by the provision. (Both men supported Trump, by the way.) Wall Street firms that are still private partnerships, such as Centerview Partners, LionTree, and William Blair, among others, would be hit, too. But not the shareholders or employees of publicly traded Wall Street firms, such as Goldman Sachs, Morgan Stanley, JPMorgan Chase, Lazard, or Evercore. “This [$10,000 deduction] is ‘peanuts’ compared to the dollar amount of tax these people pay,” one Wall Street tax professional told me. Ellis called it the “Main Street glitch,” comparing it to other “glitches” in the 2017 law, for retail establishments and grain co-ops, that took years for Congress to fix. “That’s lousy tax policy, and it’s unsustainable politically,” he continued in National Review. “It picks winners and losers in the tax code, at random, by any normal person’s analysis.”

Does Trump Know?

The provision also unfairly targets places like Trump’s hometown of New York City, which is replete with private partnerships, all of which will be paying higher taxes unless this “glitch” gets fixed in the Senate version of the bill. New York will be especially hard-hit, given its status as the center of global finance. “I agree it’s terrible,” said Kathy Wylde, the longtime president and C.E.O. of the Partnership for New York City, who recently announced her retirement. “Professional services is the city’s second-largest employer after health.” One irate Wall Streeter told me he thought that maybe Trump didn’t even know this provision was in the 1,200-page bill. Rather, he said, it was the doing of Jason Smith, the Republican chairman of the House Ways and Means Committee, who has no love for blue-state America, being from rural Missouri. The hope is that the Senate will hear from enough angry constituents in the next week or two that it fixes the “glitch.” Wylde said the Partnership for New York City has done an analysis showing that the 11 states most impacted by this SALT revision pay more than half of the nation’s federal taxes—61 percent, to be exact. An analysis by the Tax Foundation projects that this change could result in some 103,000 jobs lost and shrink the economy by about $100 billion, or 0.3 percent. Every member of the Senate Finance Committee, in fact, will soon get a chart showing them how much the taxes of the doctors, lawyers, accountants, and other professionals in their state will go up as a result of this change. “When the Senate understands that their accountant, doctor, or lawyer is going to have a net tax increase—because before, he could deduct his state and local income tax, and afterward he cannot—they’re not going to be happy,” the Wall Street executive told me. “State and local income taxes are an ordinary and necessary business expense, just like salaries and rent, and should be deductible without regard to the form of the business—corporation, partnership, or sole proprietorship—or the taxpayer’s line of business,” explained the tax professional. On the other hand, for the finance types on Wall Street, there is some good news in the bill as it now stands. Since returning to the White House, Trump has, on several occasions, urged Congress to close the so-called “carried interest loophole,” which may or may not be an actual loophole, but allows private equity and hedge fund moguls to pay the lower capital gains tax rate on profits they make buying or selling companies, rather than the ordinary income rate. Trump was probably just posturing about wanting to eliminate this benefit for his buddies in real estate and finance. The critics of this favorable tax treatment argue that the profits are a form of compensation for services, like those of other employees, and should be taxed like wages. Of course, ending this tax benefit has been a perennial trial balloon in nearly every tax bill over the past few decades and a reliable applause line at State of the Union speeches. But for some reason—expert lobbying? More trouble than it’s worth?—repealing the “carried interest loophole” once again did not make it into the bill that the House passed last week by one vote.

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