What Mitt Ought to Say Next

GOP Presidential candidate Mitt Romney is expected to soon release personal finance statements, but I say, he ought to go ahead and do it with a little flair. Take the documents to Capitol Hill, dump them on the National Mall, and tell Congress “Here’s what you asked for: like I said, I pay about 15% taxes. Also, I’ll bet anyone who wants to take me up on it $10K that you don’t have the stones to raise ‘em, either.”

I’ll bet that Mitt doesn’t get a single taker. Crickets.

The debate on how PE is taxed jumped back into the headlines when front-runner for the GOP presidential nomination Mitt Romney acknowledged he’s taxed “closer to 15 percent than anything” else. Democrat Sandy Lavin used the opportunity to pitch another round of legislation that would substantially increase the carried tax rate. His critics immediately assailed him with attacks that will likely be lobbed again at him once he’s officially the Republican presidential candidate. The presumed $270 million-ish vast spectrum of Romney wealth will be used as a tool to show he’s out of touch with the American populace and, by others, as evidence that PE’s taxes are too low. And, were Mitt’s millions taxed unlike capital gains and more like the wages that they in fact are, he’d have less than half the war chest he’s putting to use to take on President Barack Obama.

Washington insiders acknowledge that, while the prospect of increasing taxes on private equity is equally appealing to Democrats as it is to politicians like the sinking Newt Gingrich, the matter is more of a political football than a matter of actual policy.

“It’s a reasonable idea on the White House’s part,” a Beltway insider tells peHUB. “But I can see no reason why the GOP-controlled House would pass a bill that would raise taxes and score the President a political victory. It would also be heavily opposed by some very rich people, who, given recent changes to the campaign finance system, can spend a lot of money fighting both [legislation to increase the carried interest tax rate] and any member of Congress supporting it in an election year.”

Not that PE should anticipate a tax hike in the next session of Congress, either, or in the 113th. It would be incredibly, perhaps almost impossibly difficult for Democrats to overtake the House, and maintain the Senate and the White House. And, even if they do, there are Democrats—in fact, in my home state of New York—that count PE pros like Henry Kravis, Stewart Kohl and Marc Leder among their campaign donors. Don’t expect that crowd to cough up the bucks in 2014 or 2016 if they perceive past benefactors to be supporters of legislation that would cut their income stream in half.

What would it mean for the Private Equity Growth Capital Council if, in a year it enters leader-less, at a time when the PE firm that used to be run by the man who would be president doesn’t even feel like paying dues, and the very piece of legislation that is core to its existence is cast aside? Does the private equity industry really need a mouthpiece, at all? The National Venture Capital Association—after a 2011 where it relentlessly and successfully lobbied on behalf of its supporters—is working to distance itself from PE as an asset class, but in all likelihood, the organization’s time could probably be better spent.

With every day that passes in D.C, it becomes less and less likely lawmakers will succeed in raising the carried interest tax rate, and any major blows to the Democratic party would virtually guarantee the asset class is insulated from a real legislative threat well into the future. Absent any sea change while the Obama Administration is in power, the White House’s chances of pushing a law to increase tax on private equity will remain prohibitively low. And, of course, if there ever is a President Romney, well, let’s just say it is pretty certain taxes won’t be increasing for private equity.

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