[DEBATE] : US Congress sides with the workers

[Sean Jacobs]

>
> 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 
> firms
> 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 
> to
> 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 
> have
> created a class of superwealthy investors and taken some of America's 
> large
> corporations private -- hired dozens of lobbyists, stepped up campaign
> contributions and lined up business allies to wage an unusually 
> conspicuous
> lobbying blitz. Their argument was that higher taxes would run counter 
> to
> accepted tax policy and slow economic growth.
>
>
> Some lawmakers have touted the tax boost as a way to pay for such 
> expensive
> measures as the repeal of the alternative minimum tax, which this year
> alone threatens to increase taxes on 23 million households. But 
> lawmakers
> and lobbyists agree that if the tax is not raised this year, its 
> chances
> are not strong in 2008, either; Congress tends to be leery of tax 
> increases
> 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 
> year,
> 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 
> to
> 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 
> response
> to a question yesterday: "Given the difficulty in getting any 
> legislation
> 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 
> equity
> firms."
>
>
> 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 
> managers'
> profits, known as carried interest, were taxed as capital gains, for 
> which
> the rate is usually 15 percent. That is less than half the 35 percent 
> top
> rate paid on regular income.
>
>
> A leading legislative proposal, which originated in the House, would 
> tax
> carried interest as regular income. By one back-of-the-envelope
> calculation, the change could raise an extra $6 billion a year in 
> personal
> income taxes.
>
>
> That proposal was authored by Rep. Sander M. Levin (D-Mich.) and 
> sponsored
> by Rep. Charles B. Rangel (D-N.Y.), chairman of the House Ways and 
> Means
> 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, 
> the
> 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, 
> have
> been reluctant to advance the issue at all. "There's no carried 
> interest
> proposal in the Finance Committee at this time," Carol Guthrie, 
> spokeswoman
> for Chairman Max Baucus (D-Mont.), said via e-mail. "We're still 
> reviewing
> 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 
> the
> 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. 
> Akin
> 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 
> aides.
>
>
> 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 
> the
> 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 
> to
> lobbyists for the industry.
>
>
> Some of the most prominent executives in the industry have made the 
> rounds
> of senior lawmakers in recent months. Among those seen on Capitol Hill 
> were
> former commerce secretary Peter G. Peterson of Blackstone Group and 
> David
> 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 
> Commerce.
> 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
> developers.
>
>
> 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 
> the
> 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 
> held
> three hearings on the subject at which "a number of issues have been 
> raised
> regarding how a change in the tax treatment of private equity firms 
> might
> affect the broader economy." He added: "It is important that the 
> Finance
> Committee adequately consider those issues to avoid unintended
> consequences."
>