Private equity underwriters (PEU) are experts at tax avoidance. Each year the PEU boys buy thousands of companies, load them with debt, deal and annual management fees. PEU ownership often turns profitable companies into unprofitable one. That means affiliates pay no taxes or garner tax loss carryforwards. MarketWatch reported:
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%.
Fourteen years ago I attended an open house hosted by Congressman Mike Conaway, Certified Public Accountant (CPA). I asked a question about the impact of private equity buyouts and future lower tax receipts in the Treasury:
Q: As an accountant you are aware of the need to balance revenues with expenses. What is the impact of the recent flurry of private equity deals on expected Treasury receipts in 2008 and beyond? In the case of recently bought out HCA and Triad Hospitals, the additional interest for their new owners is a combined $2 billion. As private sector companies have to balance the revenue expense equation, this means more health care price increases or significant hospital expense cuts. Spreading the new Community Health Systems debt over their facilities amounts to $2 million per hospital. The new debt taken on by SACMC’s corporate parent is enough to wipe out their merged company’s bottom line for all of last year. This would be a $200 million hit to the Treasury. HCA just announced their profits are down 50%, mainly due to increased interest costs. What are you as an accountant doing to monitor and address this, and specifically the revenue side of the federal government?My grandfather was an accountant with Price Waterhouse before they added consulting divisions and merged with other former Big Eight accounting firms.
Response: Conaway used it as a softball. "He trusts the capital gains from those sales make up for any decreased business income taxes." After a five minute answer, the end result is the federal government does not monitor major shifts like buyouts and their subsequent impact on tax receipts. There is nothing concerning about private equity firms in his mind. (Note: he does receive donations from PAC's of firms owned by major PEU's. Carlyle's Vought Aircraft Industries, WCAS's U.S. Oncology, and soon to be KKR's TXU. Vought benefited from the largest earmark to date, $2.4 billion to buy new military planes).
Private equity's use of nonstandard measures steamrolled the accounting profession. Financial beat cops folded under the widespread influence of policy making billionaires, as did elected officials.
This citizen saw in 2007 how the spread of PEUs would negatively impact the federal Treasury. My conflicted Congressman ignored his professional duty as he spoon fed me bull excrement. My grandfather would've been sorely disappointed in the accounting profession.
The greed and leverage boys anti-tax predilections have been fully enabled by elected officials. Politicians Red and Blue love PEU.
Update 9-23-21: Carlyle Group co-head of European buyouts Marco De Benedetti said:
“We are peak in the terms of deal activity,” De Benedetti said, adding that the ramping up of capital deployment and fund raising cycles would also likely remain. “Speed is here to stay,”
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.
Update 9-26-21: Former Clinton Labor Secretary Robert Reich wrote:
The most telling trends over the last three decades have been the growing share of the economy going into corporate profits – generating ever-greater compensation packages for top executives and ever-higher payouts for big investors (all of whom live off shares of stock) – and the declining share going to most Americans as wages and salaries.
He said this after saying greed had been "laundered out" of corporate contracts. Greed drove the three decades old trend, nothing else.
