Private Equity firms bought Congress to retain Carried Interest tax break

[Brian4Liberty]

Mitch McConnell high on the list...


Money Talks: Blackstone, Carlyle, KKR dial up donations to key GOP lawmakers as tax bill protects carried interest loophole (http://www.foxbusiness.com/politics/2017/12/20/money-talks-blackstone-carlyle-kkr-dial-up-donations-to-key-gop-lawmakers-as-tax-bill-protects-carried-interest-loophole.html)
By Brian Schwartz - December 20, 2017

If you want to know how one of Wall Street’s biggest players managed to keep a massive and controversial loophole in the GOP tax bill, just follow the money.

The $2.5 trillion private equity business, comprised of Wall Street behemoths Blackstone Group (BX), Carlyle Group (CG) and KKR & Co. (KKR), funneled massive amounts of campaign cash into the coffers of Republican leaders in the House and the Senate as these same lawmakers voted for a tax bill that preserves the so-called carried interest loophole, campaign contribution documents reviewed by FOX Business show.

In 2017 alone, members of the three private equity firms gave a combined $1.31 million to GOP lawmakers in the House and the Senate, compared to just $438,000 to Democrats, documents show.

Public policy groups and some lawmakers have called for eliminating the carried interest deduction as a form of welfare for the rich, since private equity companies and their investors so heavily benefit from the loophole that allows for profits on their holdings to be taxed at a lower rate than ordinary income. During the 2016 presidential campaign, then-candidate Trump said he would end the deduction for everybody during his populist push to win the White House while noting that average families pay a higher income tax rate than executives from this industry.

But the private equity business has been successfully fighting to retain the loophole in the tax code for years. Through a combination of lobbying key Congressional leaders, and it appears, targeted campaign contributions to those same leaders, the industry was able to convince the Trump administration and the GOP Congress not to touch its sacred cow yet again in the current tax bill, a move that will save these firms around $2 billion a year.
...
Making the loophole’s inclusion in the tax bill even more controversial is the closing of other loopholes and deductions, such as the deduction for state and local taxes. Ending that deduction could harm even middle-class taxpayers in some states like New York, New Jersey and California who might pay an effective tax rate that is higher than a private equity investor. And even on Wall Street, which favors lower taxes on business, the carried interest loophole is considered a controversial one. For example, bankers and investors who work at Goldman Sachs (GS) and perform some as private equity executives do not benefit from a similar loophole. These same executives say private equity firms would still be able to take risk on companies without the loophole, and the profits generated would still be enormous.

The reason for the loophole’s survival, Wall Street executives say, comes down to money and the power of the private equity industry in Washington, where it targets key lawmakers for campaign contributions and constantly lobbies the White House on maintaining the favorable tax treatment as good for the economy, even if the data is decidedly mixed.

For example, most of the big private equity firms, like Blackstone, are located in New York or, in the case of Carlyle, Washington, D.C. But Blackstone was so interested in the outcome of the 2014 Kentucky Senate race that it plowed $217,000 into Mitch McConnell’s campaign coffers in order to help the GOP Senate Majority leader keep his seat. Since his re-election campaign, they've continued to be key allies of McConnell with Blackstone employees so far contributing a grand total of $212,000 in 2017, according to data from the Federal Election Commission.

That means Blackstone has been a top contributor to McConnell for the past two election cycles, at a time when the Senate Republican leader was among the chief architects of the GOP tax bill. A spokesman for McConnell declined to comment, as did a spokeswoman for Blackstone.

But McConnell isn’t the only Republican lawmaker from outside of New York to rake in campaign cash from the largely East Coast-based private equity business. Paul Ryan, the GOP House Speaker from a district in Wisconsin, received $68,000 from Blackstone and its executives in 2017 (Ryan’s second-largest contributor so far this year) and $36,000 from Carlyle Group and its executives, documents show.
...
Other big beneficiaries of private equity campaign cash include GOP Utah Sen. Orrin Hatch, the powerful chairman of the Senate Finance Committee who received $60,000 this year alone from Blackstone, and GOP House Ways and Means Committee chief Kevin Brady from Texas, who received $25,000 from executives at KKR this year alone. A KKR spokeswoman didn’t return calls for comment.

The White House had no comment on the matter, but earlier on Wednesday, Trump’s National Economic Council Chairman Gary Cohn blamed Congress’s relationship with big private equity firms and their lobbyists for the carried interest loophole’s survival in the final tax bill, stating that the administration tried to get the loophole removed “25 times.”

“The reality of this town is that this constituency has a very large presence in the House and Senate,” Cohn said.

However, others close to the tax bill process say the White House didn’t make ending the loophole a priority. They point to President Trump’s close relationship with Blackstone chief Steve Schwarzman, a key outside economic adviser, for the administration’s poor effort in the matter. A spokeswoman for Cohn had no comment.
...
More: http://www.foxbusiness.com/politics/2017/12/20/money-talks-blackstone-carlyle-kkr-dial-up-donations-to-key-gop-lawmakers-as-tax-bill-protects-carried-interest-loophole.html



https://www.youtube.com/watch?v=BrIa4M0OWyM
http://video.foxbusiness.com/v/5688606746001/?#sp=show-clips

Older report:


https://www.youtube.com/watch?v=YckPaVGjABk

[Brian4Liberty]

Mitch McConnell's SuperPAC received donations from Blackstone...


Stephen Schwarzman, chairman of the private equity titan Blackstone Group, contributed $2.2 million. Schwarzman is an avowed opponent of the Dodd-Frank Wall Street reform law passed in the wake of the 2008 financial crisis. He supports radically reducing regulations for financial firms and cutting taxes, or keeping them as low as they already are, for billionaires like himself.

“We’re so overregulated as a country that we just crushed our productivity,” Schwarzman said in the past. “That’s temporary because it’s reversible if anybody politically chooses to reverse it. If they wanna accelerate it, good luck.”

After President Barack Obama called for raising the tax rate on carried interest, which is how private equity investors make their money, Schwarzman said, “It’s like when Hitler invaded Poland in 1939.
...
https://www.huffingtonpost.com/entry/mitch-mcconnell-super-pac_us_5849eb76e4b0bd9c3dfc03cd”

[dean.engelhardt]

I am so conflicted on this. On one hand I hate special interests; on the other hand taxation is theft.

[Krugminator2]

I am all for cutting taxes.

That said, I do not understand at all why fund managers and equity managers get a large chunk of their income taxed at the capital gains rate. If you trade, you provide a service. Great. Nothing wrong with it. Speculators are heroes in book. But i don't get how that income is taxed at the capital gains rate. It should be treated the same way the income a barber makes.

The easy way around this is to tax everything at the same rate.

[Brian4Liberty]

I am so conflicted on this. On one hand I hate special interests; on the other hand taxation is theft.

It's cronyism. The swamp is alive and well.

[Brian4Liberty]

I am all for cutting taxes.

That said, I do not understand at all why fund managers and equity managers get a large chunk of their income taxed at the capital gains rate. If you trade, you provide a service. Great. Nothing wrong with it. Speculators are heroes in book. But i don't get how that income is taxed at the capital gains rate. It should be treated the same way the income a barber makes.

The easy way around this is to tax everything at the same rate.

The same rate is good. Personal rates lower than business rates would be even better, but the swamp did this ass-backwards.

[Brian4Liberty]

Laura Ingraham interviewed VP Pence today and asked about keeping the Carried Interest tax break. Who wanted to keep it? He squirmed a bit and didn't answer the question. She didn't press him on it. Seems to be the standard reaction from GOP members of Comgress.

[Brian4Liberty]

https://www.youtube.com/watch?v=-aSY74-lm_g

[oyarde]

Laura Ingraham interviewed VP Pence today and asked about keeping the Carried Interest tax break. Who wanted to keep it? He squirmed a bit and didn't answer the question. She didn't press him on it. Seems to be the standard reaction from GOP members of Comgress.

He should have just used it as an opportunity to tell the truth and drop some names . LOL

[Krugminator2]

Laura Ingraham interviewed VP Pence today and asked about keeping the Carried Interest tax break. Who wanted to keep it? He squirmed a bit and didn't answer the question. She didn't press him on it. Seems to be the standard reaction from GOP members of Comgress.

936015898707623936

I hate the logic both Ron and Rand use on these deductions. I will never understand the aversion to a flat tax.

Taxing carried interest at a privileged rate doesn't encourage investment at all like lowering the capital gains rate might. It violates equal protection. It should be unconstitutional. It is not good policy. It is the exact same thing as the Carrier deal earlier deal. It is preferential treatment to a politically connected industry.

[Brian4Liberty]

936015898707623936

I hate the logic both Ron and Rand use on these deductions. I will never understand the aversion to a flat tax.

Taxing carried interest at a privileged rate doesn't encourage investment at all like lowering the capital gains rate might. It violates equal protection. It should be unconstitutional. It is not good policy. It is the exact same thing as the Carrier deal earlier deal. It is preferential treatment to a politically connected industry.

I understand Ron's position in that any and all increases to taxes should be avoided. I believe that's where he is coming from.

There are pros and cons involved here, and IMHO, the cons of the special treatment where money managers can claim their compensation as carried interest instead of income out weigh the "pro" of strict adherence to "never increase taxes".

The cons of compensation as carried interest (as opposed to legitimate long term capital gains) is that it is pure cronyism. It is unfair to others who must pay the higher income tax rates for their compensation. Additionally, every special tax rule increases complexity, and it was pretty obvious that the complexity of the tax code is a problem.

The solution is to lower all rates to the same level, which adheres to the principle of lowering taxes, as well as simplification, fairness and elimination of corrupt cronyism.

[Brian4Liberty]

936015898707623936

I hate the logic both Ron and Rand use on these deductions. I will never understand the aversion to a flat tax.

Taxing carried interest at a privileged rate doesn't encourage investment at all like lowering the capital gains rate might. It violates equal protection. It should be unconstitutional. It is not good policy. It is the exact same thing as the Carrier deal earlier deal. It is preferential treatment to a politically connected industry.

And I'm not sure that Ron was specific enough with that Tweet. I agree that "carried interest" as a form of long term capital gains is fine, and should continue that way. What is not acceptable is money managers being able to claim their compensation as carried interest.

[dean.engelhardt]

The hypocrisy I see on the left wing news about carried interest is maddening. The GOP is bad because they took money from rich people and saved the carried interest tax exemption. So what is the solution? Vote out (R)s and replace them with (D)s.

But wait. Didn't the Democrats have a majority in both houses of congress and hold the White House and decide to keep the carried interest exemption in exchange for campaign contributions from the same rich people?

[Brian4Liberty]

The hypocrisy I see on the left wing news about carried interest is maddening. The GOP is bad because they took money from rich people and saved the carried interest tax exemption. So what is the solution? Vote out (R)s and replace them with (D)s.

But wait. Didn't the Democrats have a majority in both houses of congress and hold the White House and decide to keep the carried interest exemption in exchange for campaign contributions from the same rich people?

The Democrats have perfected in your face, blatant hypocrisy.

[Brian4Liberty]

A real estate analogy makes the carried interest issue easier to follow.

Imagine you purchase a house. You keep the house for 5 years. The price goes up, you sell, your profits are considered long term capital gains. That is like simple carried interest. No controversy. Is that what Ron Paul is talking about?

Now let's say that your real estate agent worked for you during the purchase and sale of the house. They take a fee for the purchase and sale, but they also take a 20-40% cut of your profits at sale time. That is the loophole. Their cut of your profits is their compensation, but they can claim it as a long term capital gain.

[Brian4Liberty]

Added to OP...


Money Talks: Blackstone, Carlyle, KKR dial up donations to key GOP lawmakers as tax bill protects carried interest loophole (http://www.foxbusiness.com/politics/2017/12/20/money-talks-blackstone-carlyle-kkr-dial-up-donations-to-key-gop-lawmakers-as-tax-bill-protects-carried-interest-loophole.html)
By Brian Schwartz - December 20, 2017

If you want to know how one of Wall Street’s biggest players managed to keep a massive and controversial loophole in the GOP tax bill, just follow the money.

The $2.5 trillion private equity business, comprised of Wall Street behemoths Blackstone Group (BX), Carlyle Group (CG) and KKR & Co. (KKR), funneled massive amounts of campaign cash into the coffers of Republican leaders in the House and the Senate as these same lawmakers voted for a tax bill that preserves the so-called carried interest loophole, campaign contribution documents reviewed by FOX Business show.

In 2017 alone, members of the three private equity firms gave a combined $1.31 million to GOP lawmakers in the House and the Senate, compared to just $438,000 to Democrats, documents show.

Public policy groups and some lawmakers have called for eliminating the carried interest deduction as a form of welfare for the rich, since private equity companies and their investors so heavily benefit from the loophole that allows for profits on their holdings to be taxed at a lower rate than ordinary income. During the 2016 presidential campaign, then-candidate Trump said he would end the deduction for everybody during his populist push to win the White House while noting that average families pay a higher income tax rate than executives from this industry.

But the private equity business has been successfully fighting to retain the loophole in the tax code for years. Through a combination of lobbying key Congressional leaders, and it appears, targeted campaign contributions to those same leaders, the industry was able to convince the Trump administration and the GOP Congress not to touch its sacred cow yet again in the current tax bill, a move that will save these firms around $2 billion a year.
...
Making the loophole’s inclusion in the tax bill even more controversial is the closing of other loopholes and deductions, such as the deduction for state and local taxes. Ending that deduction could harm even middle-class taxpayers in some states like New York, New Jersey and California who might pay an effective tax rate that is higher than a private equity investor. And even on Wall Street, which favors lower taxes on business, the carried interest loophole is considered a controversial one. For example, bankers and investors who work at Goldman Sachs (GS) and perform some as private equity executives do not benefit from a similar loophole. These same executives say private equity firms would still be able to take risk on companies without the loophole, and the profits generated would still be enormous.

The reason for the loophole’s survival, Wall Street executives say, comes down to money and the power of the private equity industry in Washington, where it targets key lawmakers for campaign contributions and constantly lobbies the White House on maintaining the favorable tax treatment as good for the economy, even if the data is decidedly mixed.

For example, most of the big private equity firms, like Blackstone, are located in New York or, in the case of Carlyle, Washington, D.C. But Blackstone was so interested in the outcome of the 2014 Kentucky Senate race that it plowed $217,000 into Mitch McConnell’s campaign coffers in order to help the GOP Senate Majority leader keep his seat. Since his re-election campaign, they've continued to be key allies of McConnell with Blackstone employees so far contributing a grand total of $212,000 in 2017, according to data from the Federal Election Commission.

That means Blackstone has been a top contributor to McConnell for the past two election cycles, at a time when the Senate Republican leader was among the chief architects of the GOP tax bill. A spokesman for McConnell declined to comment, as did a spokeswoman for Blackstone.

But McConnell isn’t the only Republican lawmaker from outside of New York to rake in campaign cash from the largely East Coast-based private equity business. Paul Ryan, the GOP House Speaker from a district in Wisconsin, received $68,000 from Blackstone and its executives in 2017 (Ryan’s second-largest contributor so far this year) and $36,000 from Carlyle Group and its executives, documents show.
...
Other big beneficiaries of private equity campaign cash include GOP Utah Sen. Orrin Hatch, the powerful chairman of the Senate Finance Committee who received $60,000 this year alone from Blackstone, and GOP House Ways and Means Committee chief Kevin Brady from Texas, who received $25,000 from executives at KKR this year alone. A KKR spokeswoman didn’t return calls for comment.

The White House had no comment on the matter, but earlier on Wednesday, Trump’s National Economic Council Chairman Gary Cohn blamed Congress’s relationship with big private equity firms and their lobbyists for the carried interest loophole’s survival in the final tax bill, stating that the administration tried to get the loophole removed “25 times.”

“The reality of this town is that this constituency has a very large presence in the House and Senate,” Cohn said.

However, others close to the tax bill process say the White House didn’t make ending the loophole a priority. They point to President Trump’s close relationship with Blackstone chief Steve Schwarzman, a key outside economic adviser, for the administration’s poor effort in the matter. A spokeswoman for Cohn had no comment.
...
More: http://www.foxbusiness.com/politics/2017/12/20/money-talks-blackstone-carlyle-kkr-dial-up-donations-to-key-gop-lawmakers-as-tax-bill-protects-carried-interest-loophole.html

[timosman]

A real estate analogy makes the carried interest issue easier to follow.

Imagine you purchase a house. You keep the house for 5 years. The price goes up, you sell, your profits are considered long term capital gains. That is like simple carried interest. No controversy. Is that what Ron Paul is talking about?

Now let's say that your real estate agent worked for you during the purchase and sale of the house. They take a fee for the purchase and sale, but they also take a 20-40% cut of your profits at sale time. That is the loophole. Their cut of your profits is their compensation, but they can claim it as a long term capital gain.

Why does anybody go to work?:rolleyes:

[Brian4Liberty]

A little history of McConnell donors, even before this new tax plan. Narrowed down to financial industry donors only, which make up a good portion of his top 50 donors.


Mitch McConnell's top 50 donors [UPDATED]

...DONORS to Senate Majority Leader Mitch McConnell’s political committees and super PACs supporting McConnell political causes between Jan. 1, 2009 and Dec. 31, 2015.
...
*Warren Stephens and Stephens Inc., Little Rock, investment banking, $1,251,300

Paul Singer and Elliott Management, New York, hedge funds, $1,119,800

Stephen Schwarzman and Blackstone Group, New York, private equity, $881,225

Lawrence F. DeGeorge, Jupiter, Fla., venture capital, LPL Investment Group, $505,200

*Bruce Kovner, New York, Caxton Alternative Management, private investment firm, $500,000

John W. Childs, Boston and Vero Beach, J.W. Childs Associates, private equity, $495,200

Thomas and Paula McInerney, Westport, Conn., Bluff Point Associates, private equity, $350,400

*Cliff Asness, New York, AQR Capital Management, investment management, $300,000

Howard Cox, Boston, venture capital, $152,600

*Goldman Sachs, New York, financial services, $145,975

James Patterson, Louisville and West Palm Beach, Pattco Inc., investor, $137,600

Steven A. Webster, Houston, Avista Capital, private equity, $130,200

JP Morgan Chase, New York, financial services, $121,575

Houchens Industries, Bowling Green, grocery stores, financial services, etc., $119,250

Capital Group Companies, Los Angeles, investment management, $115,500

Sam Fox and family, St. Louis, chairman of Harbour Group, private equity, $112,800

Dian Stai and Mansefeldt Investment Corp., Abilene, Texas, $110,400

Russell L. Carson and Welsh Carson Anderson & Stowe, New York, private equity, $107,700

Bradley M. Bloom, Wellesley Hills, Mass., Berkshire Partners, private equity, $105,200
...
More: https://www.courier-journal.com/story/news/politics/mitch-mcconnell/2016/02/08/mitch-mcconnells-top-50-donors-updated/79996856/

[Brian4Liberty]

The hypocrisy I see on the left wing news about carried interest is maddening. The GOP is bad because they took money from rich people and saved the carried interest tax exemption. So what is the solution? Vote out (R)s and replace them with (D)s.

But wait. Didn't the Democrats have a majority in both houses of congress and hold the White House and decide to keep the carried interest exemption in exchange for campaign contributions from the same rich people?

Democrats never touched it...


Trump & carried interest: Private equity firms also donated to Clinton, Tony Sayegh says
By Matthew Wisner - December 21, 2017
...
During a speech he made detailing his economic agenda in August 2016, then-candidate Trump discussed plans to remove the carried interest deduction and similar loopholes through his tax reform plan.

“We will eliminate the carried-interest deduction, well-known deduction, and other special interest loopholes that have been so good for Wall Street investors and for people like me.”

Tony Sayegh, assistant secretary of the Treasury, weighed in on the carried interest loophole, telling FOX Business’ Stuart Varney on “Varney & Co.,” “The president wanted that out, he campaigned on eliminating carried interest. We tried several times obviously to get it out of the bill, went through a conference process that ultimately had it in there. But that conference process also produced a terrific tax bill, so we’re very happy with the ultimate product.”

FOX Business’ Charlie Gasparino reported that private equity firms, such as KKR (KKR) and Blackstone (BX), lobbied heavily to keep the loophole in the tax bill, making big donations to members of the conference committee.

Sayegh responded to those reports by pointing out that private equity money went to Democrats as well.

“They make big donations to Chuck Schumer and Hillary Clinton, a lot of Democrats too, Stuart, and I’ll remind you that, you know, President Obama was against carried interest, Democrats were against that carried interest loophole and they never did it, not when they had the presidency, not when they had the Senate or the House.”
...
More: http://www.foxbusiness.com/politics/2017/12/21/trump-carried-interest-private-equity-firms-also-donated-to-clinton-tony-sayegh-says.html

[Cleaner44]

Brian, I love you... but this tax cut is a positive no matter what.

Regardless is the imperfections, giving less money to the crooks in D.C. is a good thing.

Please correct me if I am wrong here.

Carried interest "loophole" = Tax deduction

Deductions that reduce tax liabilities means less money for politicians to spend. Less money in politicians hands = more money in private hands.

More deductions > less deductions

Private hands > government hands

Free markets > government contracts

Some win > no win

My goal is Ron Paul's goal. Reduce the income tax to 0%.

[Brian4Liberty]

Brian, I love you... but this tax cut is a positive no matter what.

Regardless is the imperfections, giving less money to the crooks in D.C. is a good thing.

Please correct me if I am wrong here.

Carried interest "loophole" = Tax deduction

Deductions that reduce tax liabilities means less money for politicians to spend. Less money in politicians hands = more money in private hands.

More deductions > less deductions

Private hands > government hands

Free markets > government contracts

Some win > no win

My goal is Ron Paul's goal. Reduce the income tax to 0%.

Of course. No personal income tax at all is the goal.

My understanding is that the carried interest loophole allows money managers to categorize their adviser/management income as long term capital gains, which is taxed at a much lower rate. So it's not a deduction. It's a special categorization.

I like lower taxes more than most people, but if they insert a section into the code stating that actor's wages based on box office take shall be taxed at a lower rate (because everyone loves actors and they deserve a tax break), I won't be celebrating.

Either way, my preference is for lower rates for all. Deductions, write-offs and complexities enable cronyism and social and economic "engineering".

[Swordsmyth]

Of course. No personal income tax at all is the goal.

My understanding is that the carried interest loophole allows money managers to categorize their adviser/management income as long term capital gains, which is taxed at a much lower rate. So it's not a deduction. It's a special categorization.

I like lower taxes more than most people, but if they insert a section into the code stating that actor's wages based on box office take shall be taxed at a lower rate (because everyone loves actors and they deserve a tax break), I won't be celebrating.

Either way, my preference is for lower rates for all. Deductions, write-offs and complexities enable cronyism and social and economic "engineering".

The worst thing about such special treatment is that the recipients then feel free to vote for higher taxes on the rest of us.