Spotlight Grows on US Tax Breaks Favoring Private Equity Buyouts
According to a recent New York Times article, Charles E. Grassley of Iowa, the ranking Republican on the Senate Finance Committee, has been talking up the prospect of taxing the enormous fees that private equity firms take on the profit of investments — known as the “carry” — as ordinary income instead of as a capital gain. The tax talk in Washington is the latest sign of a growing resentment of the buyout business that seems to be spreading from Europe to the United States. “What I worry about is really the political stuff that’s going on,” Mr. Schwarzman of the Blackstone Group said two weeks ago in Frankfurt at Super Return, one of the industry’s best-attended and most closely watched conferences. “There are people who are trying to, at a minimum, interfere with what’s going on in private equity business.”
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Critical changes to US tax law in 2003 also paved the way for the explosion of "dividend recapitalizations" in leveraged buyout deals which have allowed the funds to get their money back in record time by piling on even more debt and further squeezing company cash flow and the workforce.