Sunday, September 19, 2021

PEU Love Continues in Washington

MarketWatch reported:

Today, virtually all income groups pay roughly 28% of their income in taxes – except for the 400 richest Americans, who each own more than $2 billion in wealth today and pay around 25% in taxes.

The super-rich’s low tax rates of today are in part aided by the collapse of federal corporate taxation. In the 1950s, 5% to 7% of national income came from corporate taxes. By 2018, that figure had fallen to just 1.5%.

The effective tax rate collapses for billionaires further because they can avoid reporting individual income by instructing their companies not to pay dividends and holding on to their shares without realizing their gains.

Public sentiment has long wanted the rich to pay more in taxes.

In the 2009 poll, 61% supported raising taxes on people with incomes of $200,000 or more.

Policy making billionaires kept preferred carried interest taxation for private equity underwriters (PEU) for the last decade. despite several runs at eliminating the tax break.

Carlyle co-founder David Rubenstein interviewed Bob Rubin and Larry Summers in 2016. Rubin and Summers served as Treasury Secretaries under President Bill Clinton.

The interviewees noted that Rubenstein could teach the audience some lessons on influencing government, given his surprisingly successful record of fighting to retain the "carried interest" tax loophole, which gives private-equity and hedge fund managers a tax preference on their performance fees.

You would need legislation to close the loophole, and that legislation has been stalled by private-equity-friendly members of Congress.

Clinton Labor Secretary Robert Reich was surprised by the Blue team's failure to increase taxes on the super wealthy.  He wrote:

This week, House Democrats released their proposed tax increases to fund Joe Biden’s $3.5tn social policy plan.

The biggest surprise: they didn’t go after the huge accumulations of wealth at the top – representing the largest share of the economy in more than a century.

Billionaire Rubenstein and his PEU brethren keep winning over widespread public opinion. 

But remarkably, House Democrats have decided to set corporate tax rates below the level they were at when Barack Obama was in the White House. Democrats even kept scaled-back versions of infamous corporate loopholes such as private equity’s “carried interest”. And they retained special tax breaks for oil and gas companies.

Forbes reported how good times continue for the PEU boys.

The private equity industry is in the midst of its most prolific year ever, with buyout firms striking deals and spending cash like never before.  

Through the end of June, investors had completed 1,721 acquisitions in the U.S. middle market with a combined value of $264.6 billion.


Tax avoidance and political influence are two levers pulled by the PEU boys and they frequently overlap.  Politicians Red and Blue love PEU, which continue to metastasize.  

Update 9-20-21:  As part of that metastasis former Treasury Secretary and Foreclosure King Steven Mnuchin has a new $2.5 billion PEU fund, Liberty Strategic Capital.   Most of the money is from Middle East sovereign wealth funds.  

Update 9-24-21:  Barron's reported:

A key tax break for private-equity and hedge-fund managers that has been targeted for elimination by every president since George W. Bush survived the latest attempt to kill it.

Last week, the House Ways and Means Committee voted to preserve the low tax rate that fund managers enjoy on their biggest paydays: compensation known as carried interest.

Update 9-25-21:  The White House said the 400 richest Americans paid a tax rate of 8.2% over the last decade.  The calculation includes unrealized gains on stock holdings, public and private.