Private equity funds and the coal industry emerge as the biggest winners due to tax incentives, while the defense budget sees a significant increase, benefiting industry contractors.
Written by: Li Xiaoyin, Wall Street Journal
The recently passed "Inflation Reduction Act" is bringing a profound and complex transformation to the American business landscape.
After narrowly passing in Congress, this massive tax and spending bill is redefining the winners and losers in the American corporate world.
Analysis indicates that the private equity industry and fossil fuel companies are the biggest beneficiaries, while the renewable energy sector and some Silicon Valley tech giants face challenges.
Private Equity Industry as the Biggest Winner
The $13 trillion private equity industry is undoubtedly one of the biggest beneficiaries of the bill.
According to the legislation, asset management giants including Blackstone and Apollo successfully retained the highly scrutinized "carried interest" tax loophole.
Reportedly, this "carried interest" provision allows traders to pay performance profit taxes at a lower long-term capital gains tax rate instead of the higher income tax rate, saving the industry billions of dollars in taxes each year.
Previously, Trump had indicated he would close this loophole, but ultimately did not succeed.
Michael Pedroni, a former U.S. Treasury official and current head of Highland Global Advisors, stated:
"If you are in the private equity space, this is a very good bill for you." "This bill represents a significant victory for the private equity industry."
Additionally, the bill also extends fixed debt interest tax deductions to depreciation and amortization, lowering tax rates for many private equity-backed companies.
However, private credit funds failed to secure nearly $11 billion in tax credits, as restrictions on dividends for so-called "business development companies" were not included in the final bill.
Retail Industry: Cuts to Subsidies and Increased Tariff Pressure
The impact of the bill on the retail industry is primarily reflected in the reduction of federal food assistance.
The Supplemental Nutrition Assistance Program (SNAP) is expected to see a $9 billion cut in funding next year. Although this is less than 1%, according to Morgan Stanley data, it will directly affect grocery spending on food and beverages nationwide.
Food companies like Conagra, Kellogg, and Kraft Heinz, which have a high proportion of SNAP user spending, may face sales pressure.
Stephanie Johnson, vice president of the National Grocers Association, warned that grocers serving low-income areas may face "severe challenges," as stable SNAP benefits are crucial for these community stores to operate.
Meanwhile, the bill's gradual elimination of tariff exemptions for imported goods valued under $800 benefits brick-and-mortar retailers. This exemption had previously been exploited by online retailers like Amazon to lower costs by shipping directly from overseas, undermining the competitiveness of small businesses in the U.S.
Additionally, the restaurant industry benefits from a $25,000 tax deduction for service workers and tip income.
Healthcare Industry: Avoiding the Worst Impact, but Still Concerns
The healthcare industry avoided the most severe cuts in the final version of the bill. Although funding for the government health insurance program Medicaid for low-income Americans was reduced, the extent was less than expected.
This led to a strong rise in stock prices for for-profit hospital chains like Tenet Healthcare and HCA Healthcare, with Tenet reaching its highest level in over 20 years in July.
However, some analysts predict that by 2034, the bill will result in 11.8 million Americans losing their health insurance.
Small hospitals, in particular, may struggle due to their reliance on Medicaid.
Wesly Pate, a senior portfolio manager at Income Research + Management, pointed out:
"Larger hospitals will be better equipped to weather this storm than smaller hospitals."
Energy Industry: Fossil Fuel Recovery, Renewable Energy Under Pressure
The energy industry shows a polarized impact from the bill.
The coal industry unexpectedly emerged as a winner, as the Trump administration viewed it as key to meeting surging electricity demand and manufacturing resurgence. Under the bill, metallurgical coal producers can now apply for a 2.5% cost tax credit before 2029.
Randall Atkins, CEO of metallurgical coal company Ramaco Resources, praised this development:
"We are extremely grateful for everything Trump has done."
Additionally, zero-carbon energy sources such as geothermal, hydropower, and nuclear energy also retained generous tax credits. Isaac Brown of clean energy venture fund 38 North Ventures called it the "best beneficiary" in the bill.
However, many solar and wind projects will lose investment and production tax credits. According to the bill, the electric vehicle tax incentives from Biden's Inflation Reduction Act will be eliminated after September, and credits for homeowners installing solar panels and heat pumps will be gradually phased out after 2025.
Data from the Treasury Department shows that the total amount of these credits reached $8.4 billion in 2023, and their elimination could trigger a wave of contractor bankruptcies.
Battery manufacturers can still receive tax credits until 2033, but new regulations require a higher percentage of U.S. manufacturing, which will impact the industry.
Tech Industry Hit: Dual Blow from AI Regulation and Electric Vehicles
The tech industry, especially tech giants, suffered significant losses from the bill.
Companies like Tesla, which rely on electric vehicle tax incentives and emissions credit sales, will face direct impacts, with their battery, charging station, and solar roof businesses all adversely affected.
Previously, Tesla benefited from electric vehicle tax incentives and earned billions through the sale of emissions credits.
The AI sector also did not escape unscathed; despite heavy lobbying from giants like Amazon, Google, Microsoft, and Meta, the Senate still rejected a proposal for a 10-year moratorium on state-level AI regulation.
This means that AI developers, including OpenAI and Anthropic, will face new regulatory pressures from U.S. states, such as New York, which has passed legislation requiring AI companies to disclose safety reports or face fines.
In contrast, private space companies like SpaceX and Blue Origin benefit from provisions in the bill that allow spaceports to finance through the municipal bond market. This advantage could drive their infrastructure expansion.
Defense Industry: Huge Budget Increase, Contractors Benefit
The U.S. defense industry is one of the biggest winners, with the defense budget set to increase by an additional $150 billion, bringing the total budget closer to a record $1 trillion.
According to data from the Congressional Budget Office, the new funding includes $23 billion for missile defense systems, $28 billion for shipbuilding (especially unmanned vessels), and more munitions and ammunition.
Analysts say traditional defense contractors like Lockheed Martin and RTX, as well as emerging tech contractors like Anduril and Palantir, will benefit from this. The shipbuilding funds will also favor HII and General Dynamics' Electric Boat subsidiary.
Higher Education: Increased Tax Burden and Indirect Impacts
The bill imposes a tax of up to 8% on investment income for some wealthy universities, with the threshold set at schools with endowment funds exceeding $2 million per student.
According to Wellesley College economist Phillip Levine, only 16 universities will be affected, with Harvard University expected to lose $267 million annually.
Additionally, cuts to student loans, healthcare, and nutrition support in the bill may indirectly raise university costs, squeezing state funding for public universities.
Levine further pointed out that this is because, in the prioritization of healthcare, hunger, and higher education, the latter often comes last.
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