- Private equity exec founded firm after working in Washington
- Sees tax increases without regulatory reform hurting the economy
- In rare interview, exec shares concern about a deeper slowdown
Aurora Capital Chairman Gerry Parsky offered perspectives on fiscal policy, taxes, the election and the state of the economy through the lens of private equity, drawing on his extensive government and investment experience dating back to the 1970s.
Sitting with Buyouts in New York City for a rare interview in October, Parsky spoke for more than an hour about the challenges facing the U.S. Whoever wins the White House must work to gain bipartisan support after this particularly contentious election, he said.
“If Hillary Clinton is president, the country will be divided,” said Parsky. “Any steps she can take to show that she wants to reach across the aisle to Republicans would be positive. There’s a lot of work to be done. There are number of steps that can and should be taken — whether with Congress or with her cabinet. Unfortunately, the election will be won by who is the least unattractive. We’ve now reached a point where too much emotion is going into yelling at each other. You need to try to bring this country together.”
Parsky expects the sluggish economic environment to persist, with the potential of a more serious slowdown on the horizon, depending somewhat on moves by officials inside the Beltway.
“Unfortunately, the policy makers in Washington have been derelict in not addressing the fiscal side of economy policy,” Parsky said. “The Fed has been called on to over-monetize a vast amount of debt. We are in a situation where, if the next administration raises taxes and doesn’t address some of the regulatory issues that impede companies from growing, there is a 50-50 chance in 12 months there will be a recession. In 18 months, it’s a higher percentage.”
He expects that the next president will tax carried interest as ordinary income rather than capital gains.
“What could help private equity the most is a strong, growing economy through economic policy that will help businesses grow,” he said. “The government should not micromanage individual investment activity.”
High deal prices and plentiful debt appear to be a potentially harmful combination for private equity and the economy, he said.
“The problem right now is a combination of too much debt available cheaply and money being poured into this category of investing where people feel pressure to put the money out,” Parsky said. “That creates a bubble that can result in a lot more risk than people think.”
After chairing a commission in California on tax policy and studying the issue for decades, he said it’s too simplistic to say that Republicans want to cut taxes on the wealthy and Democrats want to raise them. Both California and the federal government rely too heavily on the personal income tax, he said.
With respect to California, he would recommend extending the sales tax to services to create a broader revenue base and lowering the individual and corporate tax rates.
These changes would drive economic growth with positive action both in California and Washington, he said.
“You can have a combination of lowering tax rates for corporations, and individuals, and broadening the tax base in a way that incentivizes economic growth and produces more revenue,” Parsky said. “The Republicans have to take a step back and say, ‘I’m not afraid of more revenue.’
“This idea of being revenue neutral with respect to tax reform is the wrong way to look at things. If you create economic growth, you’ll create more revenue. You just have to be disciplined on how you spend it. The Democrats need to see that you can lower the progressivity of the income tax, simplify it, and not do harm to the middle class.”
Prior to founding Los Angeles-based Aurora Capital in 1991, Parsky served as assistant secretary of the treasury for international affairs from 1974-1977 under Gerald Ford, where he worked on trade policy; international monetary policy and U.S. policy relating to the international financial institutions, such as the World Bank and the International Monetary Fund.
His resume includes serving as a member and chairman of the University of California Board of Regents from 1996 to 2008; also a member of President George W. Bush’s Commission to Strengthen Social Security in 2002 and a member of President Ronald Reagan’s Council on Productivity.
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Photo of Gerry Parsky courtesy of Aurora Capital
Clarification: This article has been updated to specify that Gerry Parsky’s statement on tax reform near the end of the story referred both to California and Washington.