[DEBATE] : US Congress sides with the workers
tintinyana at gmail.com
Wed Oct 10 11:08:21 BST 2007
> Buyout Firms to Avoid a Tax Hike
> Reid Passes Word Senate Won't Act
> By Jeffrey H. Birnbaum
> Washington Post Staff Writer
> Tuesday, October 9, 2007; A01
> Senate Majority Leader Harry M. Reid (D-Nev.) has told private-equity
> in recent weeks that a tax-hike proposal they have spent millions of
> dollars to defeat will not get through the Senate this year, according
> executives and lobbyists.
> Reid's assurance all but ends the year's highest-profile battle over a
> major tax increase. Democratic lawmakers, including some presidential
> candidates, had been pushing to more than double the tax rate on the
> massive earnings of private-equity managers, who the Democrats say have
> been chronically undertaxed.
> In response, private-equity firms -- whose multibillion-dollar deals
> created a class of superwealthy investors and taken some of America's
> corporations private -- hired dozens of lobbyists, stepped up campaign
> contributions and lined up business allies to wage an unusually
> lobbying blitz. Their argument was that higher taxes would run counter
> accepted tax policy and slow economic growth.
> Some lawmakers have touted the tax boost as a way to pay for such
> measures as the repeal of the alternative minimum tax, which this year
> alone threatens to increase taxes on 23 million households. But
> and lobbyists agree that if the tax is not raised this year, its
> are not strong in 2008, either; Congress tends to be leery of tax
> in election years.
> In one meeting with industry representatives last month, Reid said the
> private-equity tax plan would not be considered in the Senate this
> according to a participant. Rather than citing the lobbying push, Reid
> implied that the reason had to do with the lack of time on the jammed
> Senate schedule.
> Reid has made similar comments at meetings on Capitol Hill, according
> participants who declined to be identified because the gatherings were
> private. Some lobbyists also said Reid aides had told them that the tax
> increase would not make it through the Senate this year.
> Reid's spokesman, Jim Manley, reflected that doubt in an e-mailed
> to a question yesterday: "Given the difficulty in getting any
> through the Senate and the little time left this year for moving other
> issues important to the American public, it is unclear whether there is
> sufficient time to address the appropriate tax treatment of private
> The move to tax private-equity earnings began last spring after some of
> those companies, also known as buyout firms, started to sell
> themselves to
> the public. Their initial public offerings forced the firms to
> disclose how
> much their managers earn, and the amounts reached into the hundreds of
> millions of dollars.
> Several prominent lawmakers expressed surprise to find that the
> profits, known as carried interest, were taxed as capital gains, for
> the rate is usually 15 percent. That is less than half the 35 percent
> rate paid on regular income.
> A leading legislative proposal, which originated in the House, would
> carried interest as regular income. By one back-of-the-envelope
> calculation, the change could raise an extra $6 billion a year in
> income taxes.
> That proposal was authored by Rep. Sander M. Levin (D-Mich.) and
> by Rep. Charles B. Rangel (D-N.Y.), chairman of the House Ways and
> Committee. Rangel has said he wants to pass "the mother of all
> reforms" and
> that the carried-interest provision might be included. So far, though,
> tax-writing panel has not scheduled a drafting session for the
> measure. And
> with little hope for Senate concurrence, a House-passed measure on the
> subject would have only symbolic value.
> Senate leaders in general, including those on the Finance Committee,
> been reluctant to advance the issue at all. "There's no carried
> proposal in the Finance Committee at this time," Carol Guthrie,
> for Chairman Max Baucus (D-Mont.), said via e-mail. "We're still
> the many issues surrounding that topic."
> Bush administration officials have also indicated that they would
> oppose a
> tax increase on carried interest.
> The attack on the carried-interest measure -- along with a smaller
> provision that involves the taxation of publicly traded partnerships
> -- has
> been expensive and highly coordinated.
> It has generated business for more than 20 lobbying firms, including
> capital's two largest, Patton Boggs and Akin Gump Strauss Hauer & Feld.
> Former senator John Breaux (D-La.) is on the case for Patton Boggs.
> Gump's team includes Kenneth B. Mehlman, a former chairman of the
> Republican National Committee. Also on retainer to private-equity
> firms are
> former senator Don Nickles (R-Okla.) and many former congressional
> A single private-equity firm, Blackstone Group, paid Ogilvy Government
> Relations $3.74 million this year, which is one of the largest recorded
> fees to any lobbying firm during a six-month period. Ogilvy said half
> payment covered unpaid bills from last year.
> Private-equity firms have already distributed at least $5.5 million in
> lobbying fees, quadruple what they spent in all of 2006, according to
> Bloomberg News. Private-equity and hedge fund executives have been
> increasing their campaign donations to members of Congress, according
> lobbyists for the industry.
> Some of the most prominent executives in the industry have made the
> of senior lawmakers in recent months. Among those seen on Capitol Hill
> former commerce secretary Peter G. Peterson of Blackstone Group and
> M. Rubenstein of Carlyle Group.
> The financiers have benefited from cooperation with the real estate
> industry and the broad business groups like the U.S. Chamber of
> Trade groups such as the Real Estate Roundtable have sent letters to
> lawmakers and testified before congressional committees against the tax
> increase because it would also impact the managing partners of their
> Some action is still possible on the tax front for private-equity firms
> this year. Rangel might still move a carried-interest provision
> through his
> committee as part of a large tax-increase measure. In addition, the
> relatively minor proposal to tax publicly traded partnerships as
> corporations has bipartisan support in both the Finance Committee and
> Ways and Means Committee, and might make headway before year-end.
> But the Senate remains an obstacle to the ultimate passage of the
> carried-interest provision. Manley noted that the Finance Committee
> three hearings on the subject at which "a number of issues have been
> regarding how a change in the tax treatment of private equity firms
> affect the broader economy." He added: "It is important that the
> Committee adequately consider those issues to avoid unintended
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