Equity Firms’ Lobbyists Buy Senate

(Updated)

Last December and again in January, I wrote about the way private equity firms were dominating the mergers & acquisitions market in the US because loopholes in the laws meant that taxation of these corporations was very low and regulation almost non-existent. The GOP-run, corporate-puppet Congresses of 2001-2006 weren’t interested in doing anything to change that situation and presented no threat, so up until the November election, the equity firms had never even bothered to form a lobbying group. A bare three weeks after the election, that oversight was corrected.

Some top private-equity funds have joined to form a lobbying organization to head off potential regulation.

The funds have become some of the most active purchasers of U.S. corporations, pooling money from private investors and companies and augmenting those sums with loads of debt. More than 28 percent of the dollar value of acquisitions announced in the United States this year involved private-equity firms, up from 3 percent five years ago, according to Dealogic.

The new organization, the Private Equity Council, is backed by such leaders in the burgeoning business of company buyouts as Blackstone Group, Carlyle Group and Kohlberg Kravis Roberts. Douglas Lowenstein, president of the Entertainment Software Association, which represents the U.S. video game industry, will head the trade association.

The move is the latest effort by the financial services industry to bolster its presence in Washington. The association that represents hedge funds, the Managed Funds Association, recently added to its staff, and the Securities Industry Association and the Bond Market Association merged this year to form what they hope will be a more influential lobby. The combined organization is the Securities Industry and Financial Markets Association, or SIFMA.

(emphasis added)

The PEC, aided by SIFMA, has been working behind the scenes ever since, spending $$millions$$ in an effort to head off legislation that would regulate the equity industry and nearly double the tax on its massive income, estimated at some $$$540 BILLION$$$ over just the past 4 years. It would seem to be money well spent. WaPo Business reporter Jeffrey Birnbaum writes today that Harry Reid has just promised the PEC there won’t be any legislation to interfere with their greed or their profits.

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.

So the PEC has just bought itself a Democratic Senate. And what does the Donkey get in return? It’s a fair question, after all.

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.

Which amounts to this as the deal: the Democratic leadership will make sure the equity funds aren’t restricted by odious regulations or have their taxes raised in return for healthy campaign contributions and help with convincing reluctant Democratic legislators from an industry “lobbying blitz”. Apparently there are some Dems not yet in the corporate bag, and Harry wants that to end.

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.

Reid’s excuse for this sell-out? Golly, guys, the Senate’s just going to be too darn busy to get around to it. I kid you not.

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.

(emphasis added)

So the alternative minimum tax on the middle class will remain in place while the threat of a legitimate tax on “superwealthy” equity funds just…goes away.

Somebody explain to me again why the Democrats are better for the country than the Republicans? I keep forgetting. Kyle?

Update: The Boston Globe has an excellent explanation of both the undertaxation of equity funds and the pathetic excuses they use to rationalize it. It’s called, appropriately, “Masters of the Universe 2.0”.

SOMEBODY WHO earns hundreds of millions of dollars a year can afford to pay income taxes at standard rates, which top out at 35 percent. Yet partners in hedge funds and private-equity firms are getting off easy, because much of their earnings are taxed at the 15-percent rate for capital gains. This break is unwarranted. Congress should pass a bill by US Representative Sander Levin of Michigan that would abolish it.

That’s the bill Harry Reid just promised the PEC would never see the light of a Senate day.

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