Everyone would pay 'Blackstone tax'

Glenn Hubbard

TEXT OF COMMENTARY

Kai Ryssdal: If you happen to be one of those people who just can't get enough of the United States tax code, the House Ways and Means Committee was the place for you to be today.

Chairman Charlie Rangel kicked off what he called the mother of all hearings. Four days of discussions centered around the idea of tax fairness. Things like the alternative minimum tax, and whether or not to raise taxes on already-rich private equity firms that go public to get richer. Groups like Blackstone that raised $4 billion in its IPO.

That raise would be a bad idea, says commentator Glenn Hubbard.


Glenn Hubbard: Congress placing a "Blackstone tax" on private equity firms seeking to go public calls to mind the alternative minimum tax.

The dreaded AMT was put into effect so that a small group of very wealthy people paid a fair share of taxes, and it turned into a tax monster that now touches the lives of many more people than just the very rich.

The Blackstone tax will also have its effects. For starters, it will give private equity giants like KKR cold feet. They've prospered without going public, and that means they're more likely now to stay private to preserve their wealth. That means ordinary investors like you and me won't be able to invest in the firms.

Raising taxes still more also makes it harder for America's proportionately fewer public companies to compete head to head with global firms whose governments tax them at much lower levels.

The question Senators Baucus and Grassley ought to study is not whether Blackstone's investors should pay taxes twice -- meaning pay taxes on both earnings and on shareholder dividends -- but whether any investor should.

This double taxation leaves America's corporate businesses the most highly taxed in the industrial world. And these high taxes are bad for investment, productivity and wages.

Congress did cut the tax on dividends and capital gains in 2003, increasing investment, stock prices and dividend payouts. But that cut is set to expire in 2010. Interestingly, the Chinese government, looking forward, is investing $3 billion in Blackstone to access this piece of America's growth machine.

Our own Congress, by contrast, has forgotten the slippery-slope lesson of the AMT. In a terrible turn for tax policy, it's beginning a large tax increase on capital instead. And we'll pay the bill in decreased investing, lower market returns, and yes, lower wages.

Ryssdal: Glenn Hubbard's Dean of the business school at Columbia University. He used to be the chairman of the Council of Economic Advisors for President Bush.

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