Private-equity could see a tax hike

U.S. Capitol Building

TEXT OF STORY

BOB MOON: One of the benefits of taking a publicly-traded company private is the tax benefits enjoyed by private-equity investors.

Some lawmakers are moving to make sure one of the world's biggest private-equity firms can't, in effect, have its cake and eat it too by becoming a publicly-traded company.

Blackstone hopes to get even bigger by raising more than $4 billion in an IPO later this month. But a bill just introduced in the Senate would more than double the company's tax rates.

Here's Marketplace's Steve Henn:


Steve Henn: When Blackstone goes public later this month, its two founding partners had expected to take home at least $2.2 billion in cash. Their tax rate on this enormous haul will be just 15 percent.

Now check your own pay stub. Chances are you're paying more. That's because you probably pay an income tax. Blackstone's partners don't. Most of their pay is investment income and taxed at a lower rate.

Len Burman follows federal tax policy at the Urban Institute.

Len Burman: The ideal is actually tax all income the same. The current system doesn't do that very well and these private equity firms are basically trying to take advantage of asymmetries in the system.

But Senators' Max Baucus and Chuck Grassley introduced a bill yesterday that would force private equity firms that are going public like Blackstone to pay up. If the bill passes, the company's tax rate could more than double.

George Plesko is a corporate tax specialist at the University of Connecticut. He says firms like Blackstone are adroit at trimming their taxes.

George Plesko: So Congress will always -- has always -- found itself in a situation where it is playing catch-up.

Blackstone amended its filings with the Securities and Exchange Commission today acknowledging that if this bill passes it could decrease the firm's value.

Nonetheless, the firm would not have to pay any corporate taxes right away. According to the Wall Street Journal, Blackstone negotiated a five-year grace period for itself from the bill's authors.

In Washington, I'm Steve Henn for Marketplace.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.

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