Sunday, August 9, 2015

What Excuse Will PEU's Offer to Protect Carried Interest Taxation?

NakedCapitalism reported two bills have been introduced to address private equity underwriters' preferred interest taxation.  Senate Bill 1686 and House Bill 2889 both carry the title of Carried Interest Fairness Act of 2015.  This battle has been fought many times.  It ends with victory by Carlyle co-founder David Rubenstein and Blackstone's Stephen Schwarzman.

Harken back to 2007 when private equity underwriters wrapped themselves in the banner of disadvantaged minorities.The Treasury Department characterized on of those disadvantaged minorities as a billionaire entrepreneur.  The PEU lobby won in 2007 and every year since.

Consider this take from a former major league business reporter from July 2011:

I watched a video interview of (David) Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!
Last month Dealbook joined with Rubenstein's disdain on raising preferred carried interest taxation calling any change "petty and vindictive."  Dealbook said it would only raise $18 billion over ten years.  That's $4 billion lower than Rubenstein's 2011 number.  Has private equity become less profitable or have they become better at sheltering their profits by offshoring and other means? 

America's corporate owned and PEU sponsored Congress will not change carried interest taxation.  It will be interesting to see how the PEU lobby justifies what most Americans see as patently unfair.  The Private Equity Growth Capital Council (PEGCC) lost their chief lobbyist Steve Judge.  I've offered a new name for the organization Private Equity Capital Knowledge Executed Responsibly (PECKER), but they haven't embraced this change. 

In 2007 The Carlyle Group managed $35 billion in assets.  Today it's $193 billion.  I'll wager David Rubenstein and Stephen Schwarzman win again.