Private-equity firms will avoid tax hike

Steve Henn Oct 9, 2007


KAI RYSSDAL: This might be a good place to mention Wall Street closed at a bunch of new record highs today. We got a peek at the minutes of the most recent Fed meeting, and learned exactly how worried Mr. Bernanke and company were — and are — about the credit crunch: a lot. That sent investors buying, on the theory there are more rate cuts to come.

After a summer that made stomachs churn, and not only among central bankers, private equity firms got a bit of good news today. Speculation in Washington is that a proposed tax increase for private equity partners won’t make it through Congress this year. Marketplace’s Steve Henn reports.

STEVE HENN: Earlier this year, in a fit of pique over equality partners’ outrageously high salaries, Congress shockingly threatened to make these Wall Street raiders pay income tax on every dollar they earn.

Right now, private-equity partners typically pay just a 15 percent capital gains tax on most of what they make — and they want to keep it that way.

DAVID SNOW: TIt will be a very happy Christmas for Washington, D.C., tax lobbyists, who have seen a gusher of spending from the private equity industry.

David Snow edits Private Equity International — he says the industry’s arguing that raising taxes on their earnings would be a disaster.

SNOW: This stifles innovation, this drives capitol offshore, and it essentially punishes an industry for being successful.

To make that point, these companies spent more money on Washington lobbyists in the first six months of this year than they did in the previous five years combined, according to the Center for Responsive Politics. And they’ve become among the largest political contributors in America. Massie Ritsch tracks money in Washington for the center.

MASSIE RITSCH: All told, Democratic national committees have collected about $7.5 million from private equity — and that is seven-and-a-half million reasons why Congress probably won’t be taking up this issue any time soon.

Republican committees hauled in 6.2 million over the same period — and Ritsch believes as long a tax hike is even remotely possible, private equity companies will remain a cash cow for both lobbyists and politicians.

In Washington, I’m Steve Henn for Marketplace.

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