US Private Equity Lobby Claims Progress in Beating Back Calls for Higher Taxes
Mega-billion buyouts may be off the immediate agenda due to the widening credit crisis, but the biggest US-based funds are optimistic about their prospects for beating back proposals to tax fund managers' earnings at a higher rate.
"Things look better now than they did two or three months ago",according to the head of the US Private Equity Council, Doug Lowenstein, who claims the situation has "stabilized.". The Council was founded last December by 11 of the largest funds, including Blackstone, KKR, the Carlyle Group,Apollo Management, Bain Capital and Madison Dearborn Partners - previously the funds had felt no need to engage in public relations and relied on direct contacts with lawmakers to achieve their legislative goals. The Council has enlisted the services of high-powered Washington lobby firms to turn back calls for taxing fund managers' profits on carried interest at the 35% corporate tax rate rather than the considerably lower rate on capital gains. The funds are also lobbying hard to kill proposals to tax publicly-traded private equity funds (like Blackstone) and hedge funds at the higher tax rate.
According to an August 31 report by Bloomberg, the lobbyists' strategy centers on mobilizing the middle-market firms who do the smaller deals to put pressure on Congress to drop the tax proposals. One of the lobbyists cited by Bloomberg described this as "Private equity going back to its roots.''
It remains to be seen whether aggressive lobbying and increased donations to both US political parties by the buyout funds - dressed up as a "grassroots mobilization" - will secure their tax relief. But by diverting public debate from the impact of the aggressive use of debt through leveraged buyouts on both the individual company and the financial system as a whole, the funds are already on the way to a key victory. As the IUF wrote on this site in June, "Taxes are only half the story, the other is DEBT. Proposals to tax private equity firms are just the beginning, not the end of the debate. While politicians are just coming to terms with the need to tax private equity firms, trade unions must escalate demands for more comprehensive regulation and ensure that - before the door is closed on debate - governments deal with the whole truth of private equity buyouts, not just half of it."
With every day bringing new evidence of the extent to which US mortgage debt was recombined, repackaged and circulated throughout global financial circuits, unions should be calling for national and supranational financial regulatory authorities to immediately investigate and regularly report on the extent of risk exposure to buyout related debt, which has been bundled, securitized and peddled around the world in as many creative forms as the subprime loans.